APPLIED EARNED VALUE MANAGEMENT Ray W. Stratton, PMP, EVP

Project Management

R Institute

FIFTEEN PROFESSIONAL DEVELOPMENT UNITS

©2016 Prodevia Learning, Inc. and Management Technologies. All Rights Reserved.

This is a distance learning course that is self-paced and instructor supported. Be sure to review the section within this course guide entitled

HOW TO COMPLETE THIS COURSE

There you will find instructions to:  Work through your course,  Formally complete it with Prodevia Learning, and  Submit your professional development credits.

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Every course in our catalog brings practicing project managers one-step closer to being recognized as a Professional Project Executive (PPE) while earning valuable recertification credit for professional designations. Convenient and affordable, the Professional Project Executive Program provides an opportunity to expand your skills as you work toward your PPE at the same time that you earn PDU credit for professional designation earned by the Project Management Institute (PMI)®. Designed to complement existing process-centric PM certifications the Professional Project Executive reflects a commitment to developing the practical and critical skills required to manage a project successfully. The experience gained through the PPE Program provides balance to hard-earned PM certifications that focus more on process than practical application. The skills developed through the PPE Program are globally recognized and applicable across industries. The Professional Project Executive curriculum has been developed by bringing together the most respected thought leaders in the industry; practitioners that are recognized as the experts and founders of their specific disciplines. Prodevia Learning is the only provider that offers these practical and diverse courses from the best names in the business on your schedule and without the financial or schedule strain of traveling to attend these popular sessions at on-site seminars and conferences. Earn more and learn more with the Professional Project Executive Program from Prodevia Learning. How to Earn Your Professional Project Executive (PPE)

Requirements are simple; complete any combination of 120 credit hours from our catalog to earn your Professional Project Executive Certificate. Choose the courses that fit your professional development goals through our diverse course catalog. The 120 hours required to earn the PPE represents the equivalent of a three-week, full-time educational program of study from the most trusted experts within the project management community of practice. The PPE curriculum remains current and relevant through the addition of new courses developed by leading experts to address the growth and advancement of the project management practice. Be a better project manager, starting today!

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Applied Earned Value Management

By Ray W. Stratton, PMP, EVP

®

1-800-291-6244

Copyright 2016 Prodevia Learning, Inc. All rights reserved. Applied Earned Value Management

Table of Contents

How to Complete This Course ...... 3 How to Complete the Guide and Exercises ...... 3 How to Contact the Instructor ...... 3 How to Submit Course Completion and Report PDUs ...... 3 Completion Checklist ...... 4 Course Objectives ...... 5 Module 1 – Introduction to Earned Value Management...... 7 Review Questions ...... 11 Module 2 – Basic Concepts of Earned Value Management ...... 13 The Three Elements of EVM ...... 13 Planned Value – The Planned Value of Work...... 13 Earned Value – The Value of Completed Work ...... 16 Actual Cost – The Cost of Completing Work and Earning Value ...... 17 Review Questions ...... 19 Module 3 – What is Required to Use Earned Value Management ...... 21 Laying the Foundation for EVM ...... 21 Getting Organized ...... 21 Getting to a Sound Schedule ...... 22 Creating a Time-Phased Budget ...... 24 Common Earned Value Management Work-in-Process Measurement Methods ...... 25 100% at Complete ...... 25 50% Start, 50% Complete ...... 26 X % Start, 100-X% Complete ...... 27 Value Milestones ...... 27 % Units Complete ...... 27 Estimated Percent Complete ...... 28 Apportioned Effort ...... 29 Level of Effort ...... 29 Review Questions ...... 30 Module 4 – Capturing the Plan with EVM ...... 31 Introduction to the Project Scenario ...... 31 Learning Activity 1: Introduction to the EzEVM Spreadsheet ...... 32 Example of Work Package Planning ...... 33 Reviewing the Plan ...... 36 Module 5 – Planning Subcontractors, Material, Other Direct Costs, & Overhead Costs ...39 Other Direct Costs ...... 39 Overhead (Indirect) Costs ...... 39 Applying EVM to Subcontractor Efforts ...... 39 Material ...... 39 Module 6 – Collecting and Analyzing EVM Data ...... 41 The Project Begins Execution ...... 41 Learning Activity 2: Translating Project Performance into EVM Data ...... 41 Module 7 – Common Analytical Products from Earned Value Management ...... 51 Cost Variance and Schedule Variance ...... 51 Learning Activity 3: Understanding Cost and Schedule Variances ...... 55 Learning Activity 4: Recording EV for troubled work packages ...... 60 SPI and CPI...... 62 Learning Activity 5: Understanding CPI, SPI$, and SPIt ...... 65 To-Complete Performance Index (TCPI) ...... 67 Variance Thresholds ...... 68 Estimates at Complete ...... 69 Learning Activity 6: Understanding Estimates at Complete ...... 72 Estimating Completion Date ...... 73 Learning Activity 7: Understanding Estimated Completion Date ...... 75 Percent Spent and Percent Complete ...... 78 Learning Activity 8: Completing the Project Scenario ...... 79 www.prodevia.com 1

Applied Earned Value Management

Module 8 – Real and Imagined Impediments to Earned Value Management ...... 83 The ANSI 748 Standards Must be Met ...... 84 People Will View EVM as a Personal Measurement Scheme ...... 84 EVM Requires Project Planning Time and Resources ...... 84 EVM is Costly and Time Consuming ...... 85 Requires Auditable Monetary Cost Collection Mechanism ...... 85 Cost Data Must Be Auditable and Accurate ...... 85 Cultural ...... 86 Executives Must Have Interest in EVM ...... 86 A WBS is Required ...... 86 Review Questions ...... 88 Appendix A – EVM Cheat Sheet ...... 89 Terminology...... 89 Planning and Measuring Progress ...... 92 EVM Calculations ...... 94 Appendix B – EzEVM™ MS Excel Workbook Instructions for Macro Settings ...... 96 Macro Security in Pre Excel 2007 ...... 96 Macro Security in Excel 2007… ...... 98 Suggested Answer Key for Review Questions ...... 101

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Applied Earned Value Management

How to Complete This Course How to Complete the Guide and Exercises This course is broken down into course modules. In order to develop a better understanding of the content of this course it is recommended that the student complete the work as follows:  Complete a reading and a study of the information contained in each module for understanding and comprehension.  The student is encouraged to make notes as they work through the course guide. These notes can assist the student in assignments following each module. Notes may be related to key ideas the student wishes to remember as well as personal insights the student may have.  Complete all corresponding assignments (see Completion Checklist, page 4). Ideally, the student should keep a student journal (separate notebook or file) with his or her answers to all assignments.  Check off assignments on the Completion Checklist as they are finished.  Work through the course guide one module at a time, completing all work associated with the current module before advancing to the next module. How to Contact the Instructor Prodevia Learning course instructors are available via email. All course correspondence will be returned promptly. Contact your course instructor at [email protected] How to Submit Course Completion and Report PDUs When you have completed working through this course guide, return to the Course Completion page at www.prodevia.com and follow the instructions there to formally complete your course with Prodevia Learning. You are required to formally complete your course in order to receive your Certificate of Completion and be awarded 15 Professional Development Units. The Course Completion webpage also includes instructions and a link for you to submit your PDUs directly to the Project Management Institute (PMI)® online. Course Detail: PMI Provider ID: 1945 PMI Activity ID: Printed on your Prodevia Learning Certificate of Completion

Note: PMI is a registered mark of the Project Management Institute.

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Applied Earned Value Management

Completion Checklist

 Module 1 – Introduction to Earned Value Management Module Reading and Study  Review Questions  Module 2 – Basic Concepts of Earned Value Management Module Reading and Study  Review Questions  Module 3 – What is Required to Use Earned Value Management Module Reading and Study  Review Questions  Module 4 – Capturing the Plan with EVM Module Reading and Study  Learning Activity 1: Introduction to the EzEVM Spreadsheet  Module 5 – Planning Subcontractors, Material, Other Direct Costs, & Overhead Costs Module Reading and Study  Module 6 – Collecting and Analyzing EVM Data Module Reading and Study  Learning Activity 2: Translating Project Performance into EVM data  Module 7 – Common Analytical Products from Earned Value Management Module Reading and Study  Learning Activity 3: Understanding Cost and Schedule Variances  Learning Activity 4: Recording EV for troubled work packages  Learning Activity 5: Understanding CPI, SPI$, and SPIt  Learning Activity 6: Understanding Estimates at Complete  Learning Activity 7: Understanding Estimated Completion Date  Learning Activity 8: Completing the Project Scenario  Module 8 – Real and Imagined Impediments to Earned Value Management Module Reading and Study  Review Questions  Course Completion Complete course through the Course Completion tab at www.prodevia.com  Submit PDUs to the Project Management Institute 

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Applied Earned Value Management

Course Objectives By the end of this course, you should be able to:

 Explain the purpose and use of Earned Value Management (EVM) for project management

 Define the three components of EVM and where they are defined within project metrics

 Define the requirements for EVM in order to be successfully utilized within the project including necessary work-in-process measurement methods

 Explain how to collect and analyze EVM data

 List the common analytical products of EVM

 Explain impediments to EVM, both real and imagined

 All course objectives can be measured through end-of-module review questions and an end- of-course assessment.

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Applied Earned Value Management Module 1 – Introduction to Earned Value Management

Module 1 – Introduction to Earned Value Management This course is about earned value management and how to effectively implement it in projects and organizations. Implementing any new process or technique involves cultural change, emotional and financial investment, and the adoption of new ways of doing the familiar. So why are more and more organizations and projects going through these steps to implement earned value management? Simply stated, over thirty years of experience with earned value management has shown it to be one of the most effective means to monitor a project’s cost and schedule performance. Today’s projects operate in an environment of overcommitted resources, demanding stakeholders, and changing technology. Corporate fiduciary responsibilities are increasing and CEOs and CFOs are asked to forecast earnings that may be dependent on their internal and customers’ projects. Knowing how projects are doing, when they will likely complete, and at what final cost is precious data that should be known. Earned value management provides us with a powerful tool to obtain these data. This course does not address all the requirements of ANSI 748, the US standard for Earned Value Management Systems (EVMS). That is because it is possible to implement Earned Value Management (EVM) without applying this standard. ANSI 748 is discussed when necessary to show the differences between an ANSI 748 implementation and a more casual implementation of EVM. However, the course does not address all the topics in ANSI 748 and should not be viewed as a course on ANSI 748 EVMS. Earned value management is applied toward the end of the project planning effort and is EVM is a way of instrumenting a project for monitoring cost and schedule during dependent on good project plans. Since it is project execution/control; it will quickly a way of instrumenting a project for show either poor project planning or an monitoring cost and schedule during project inability to execute a good project plan. execution/control, it will quickly show either poor project planning or an inability to execute a good project plan. During project execution and control earned value management provides valuable insight into the project’s current cost and schedule condition and helps the project manager balance the triple constraints of cost, schedule, and scope (performance quality). Earned value management is based on three metrics. At any point in the project these metrics tell us what project work was supposed to be complete, what work was completed, and how much was spent doing the work. At this point earned value management does not appear to add anything to what we traditionally know about our projects. In a sense that is true. Any project manager should know what is to be delivered, what has been delivered, and how much has been spent getting to this point. The power of earned value management is that it transforms our perspective of deliverables planned, deliverables completed, and funds spent to a perspective of the value of work planned, the value of work done, and the funds spent. This transformation to an all economic basis allows the comparison of each to the other in ways that we cannot do otherwise.

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Applied Earned Value Management Module 1 – Introduction to Earned Value Management

To better explain how traditional project metrics let us down consider the common practice of monitoring projects using a schedule, or list of milestones met and un-met, and a project financial report. In looking at the schedule (Fig. 1.1, Typical Gantt Chart) we can determine what activities are started, completed, underway, early or late in starting, or early or late in completing. We can get a general sense of the project relative to the current point in time by seeing how each activity is doing now compared to what was planned at this point in time. Some of these activities might be ahead, some behind. But not all activities are the same. Some are small efforts; some are large efforts. Some are on the critical path, some are not. We are able to derive a qualitative feeling about the project being ahead or behind schedule, but quantifying the schedule condition is difficult or impossible.

Figure 1.1 – Typical Gantt Chart We might look at a list of milestones (Fig. 1.2, List of Milestones) or deliverables and compare the planned completion with the current status. Here we have even less information. Some number of milestones was to be met at this point and some number of milestones has been met. Some milestones may have actual dates different from the planned dates, while other milestones may have a best guess completion date different from the planned completion date. Once again, we might obtain some qualitative insight into the project’s progress to date, but not quantitative enough that we can do any depth of analysis.

Figure 1.2 – List of Milestones If we simply look at the project financial report (Fig. 1.3, Summary Financial Report) all we can determine is how much has been spent of our total project budget. Were the funds spent well? Was any work completed? Without knowing this information, we cannot

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Applied Earned Value Management Module 1 – Introduction to Earned Value Management know if the project budget will be underrun or overrun. All we can determine is that some money has been spent on the project.

Budget Item Expenses to date Remaining Funds Project Budget Labor $356,778 $2,509,066 $2,865,844 Material $347,896 $506,560 $854,456 Subcontractor $578,621 $405,652 $984,273 Travel $79,425 ($20,471) $58,954 Overhead $24,361 $30,284 $54,645

Project Totals $1,387,081 $3,431,091 $4,818,172

Figure 1.3 – Summary Financial Report Earned value management is about quantifying the project’s progress and comparing the progress to the planned progress and funds spent. While some will suggest that earned value management is difficult, it really only adds one element to traditional project management. Earned value management uses three metrics about the project, two of which most projects likely have in place already although we might have different titles for these metrics. These earned value management metrics are Planned Value (value of work planned to complete each period), Earned Value (value of work actually completed), and Actual Cost (funds spent each period). Regardless of the manager’s role or position, earned value management Earned Value Management Metrics provides useful management information. Clearly the project Planned Value manager can use earned value The value of work planned management data to help manage to complete the project. Team leaders can use each period. earned value management data to help manage their team. Program managers and project portfolio managers can use earned value Earned Value Actual Cost The value of management data collected from all The funds work actually spent each their projects to help identify completed period. struggling projects, reallocate each period. resources, reset project priorities, and terminate projects that are likely to fail our return-on-investment expectations. Chief project officers and CFOs can use earned value management data to forecast project expenditures and completion dates and therefore better forecast corporate revenues, expenditures, and profits. Imagine knowing when a project is likely to complete and how much it will cost as financial statements are being developed about next year’s corporate earnings. Clearly, earned value management data can feed important data to reports that help meet US Sarbanes - Oxley reporting expectations. Whether the industry is information technology, new product development, aerospace, pharmaceuticals, construction, research and development, earned value provides www.prodevia.com 9

Applied Earned Value Management Module 1 – Introduction to Earned Value Management valuable project insight for any project stakeholder from team leader to corporate stockholder. Since EVM is a tool to measure cost and schedule performance these metrics need to be of interest for EVM to be applicable. The original use of EVM (known then as the Cost/Schedule Control Systems Criteria or C/SCSC) was on US Government cost reimbursable contracts. In these cases, the government (customer) had interest in both the schedule and cost since the government would reimburse contractor costs. Many companies now use EVM as a key management metric, regardless of contract type, simply because the company leadership needs to know how its projects are doing. In fact, on fixed price contracts there should be a very high interest within the company about its projects’ cost performance since it directly relates to profit. However, from a customer perspective there is no cost risk in a fixed price contract. The use of EVM’s cost performance information is of little value in these cases and may be invasive into corporate internal cost accounting. A fixed price contract may ask for schedule performance data, but should not ask for, or expect cost performance data. While the contractor may have this cost data internally, it should be considered proprietary. Time and materials contracts may not benefit from EVM schedule metrics. Typically, these contracts do not have schedules so there is no value to obtaining schedule performance. Cost performance may be applicable if rate and usage variances are of interest. Actual rates for work hours or materials can differ from planned rates. Work hours used and materials consumed can also vary from the planned amounts. These two elements in combination can produce cost performance information. So should earned value management be applied to all projects? Probably not. It depends on the type of contract or project and who is asking the performance question. In most cases a company should use EVM to know how well they are meeting customer schedule expectations and internal financial goals. If schedule and cost risks are assumed by the customer (Government) then EVM should be required by the customer and become part of the project reporting requirements.

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Applied Earned Value Management Module 1 – Introduction to Earned Value Management

Review Questions The following questions will assist you in reviewing concepts contained in this module. Answer the following questions:

1. Earned Value Management is the newest in a series of innovative project management techniques; true or false?

2. Earned value management requires what basic knowledge about a project’s status?

3. Simply comparing what has been spent on your project with what you planned to spend misses what important project aspect?

4. What levels in the project or organization can make use of EVM?

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Applied Earned Value Management Module 2 – Basic Concepts of Earned Value Management

Module 2 – Basic Concepts of Earned Value Management Percent spent is not percent done!

Does this come as a surprise? We all have had projects that exceeded their budget and failed to deliver the promised outcome. If percent spent was also percent complete, then when 100% of the budget is spent the project would be done and everyone would be happy. So we know from experience that percent spent does not mean percent done. It simply is a statement about how much money is spent and says absolutely nothing about progress. We can say the same thing about the use of time. Spending time on a project does not mean the work is getting done at the right pace, or even that the right work is getting done. It just means the clock on the wall has moved on. Schedules can give us some insight to progress, as can deliveries or completed milestones. But is the completed work worth what has been spent to get it done? Earned value management (EVM) asks us to think about the work that has been accomplished without a thought about how much has been spent or how much of our schedule time has been consumed. The Three Elements of EVM

Earned value management consists of three basic parameters that provide the essential data for a powerful set of graphical and analytical tools for understanding a project’s status and likely outcome. The good news is that two of these three parameters are likely already part of your project management processes. Adding EVM to your toolkit of project management tools will not be difficult if you practice basic project management including sound scheduling and cost estimating practices. These three parameters are:  Planned Value  Earned Value  Actual Cost

Planned Value – The Planned Value of Work The fundamental concept of EVM is that work is worth the planned or negotiated value (budget) for the work. Depending on the industry this value might be set by a formal contract, an annual budget, or a price to be paid for the end product. This concept flows down into the project as teams, subcontractors, and vendors agree to provide certain goods or services for a set budget or contract. In EVM, we use the budget as the metric to answer the question, “How much work do you have to do?” A budget of $10M means that the sponsor (customer, stakeholder, resource provider, etc.) has agreed that the project results are valued at $10M. Otherwise the two parties would have agreed on a different value. The value represents at once, two separate concepts; (a) we expect to spend $10M, and (b) the work is worth $10M. (We will discuss later how contingency funds are included in earned value management.) www.prodevia.com 13

Applied Earned Value Management Module 2 – Basic Concepts of Earned Value Management

As an example of this concept consider building a custom home. You ask an architect to design a home worth $500,000. The architect looks at the local housing market and homes in the area and designs a home worth $500,000. You select a contractor to build the home and when the home is complete you are presented with a bill for $600,000. Reluctantly you pay the bill, but the idea that you might really now have a $600,000 home makes you feel better. It comes as a surprise when the local real estate broker exclaims, “You have a nice half-million-dollar home.” The value of the work is not what you pay for it; it is what you agreed at the start it’s worth. The earned value management term for the value of work is “Planned Value”. (Some literature and US Government documents will use the more traditional term “Budgeted Cost of Work Scheduled” or “BCWS”. This term is identical with Planned Value.) The Planned Value is the value of activities to be completed. While this sounds like simply the project budget, it is the sum of each activity’s time phased budget. This is created by associating applicable budget to each detailed work activity and knowing when the work is scheduled. Thus each piece of work has two attributes: what is its value (allocated budget) and when is it planned to be completed (allocated time, or schedule). In general, if we were to add the Planned Value for all the activities on the project it should equal the total project budget, less any funds set aside for risk management or funds that have not yet been allocated to an activity. Using today’s powerful scheduling tools, resource pools, and planning tools; it is easy to determine the Planned Value. It is simply the cost of resources to be applied to the activities over their timeframe. As an example, if an activity is planned for four months, and is expected to use one person in month one, and two people for the remaining three months, the planned value for the activity is the cost of seven staff-months. Furthermore, in month one we expect to spend one-staff month, and two staff-months for each of the final three months. When we use the term “time phased budget” we are showing what we expect to spend each month based on the work to be completed that month and the cost of the planned resources. If we plot the cumulative value of all project activities and their budgets over time we see a plot that shows the cumulative planned value going from zero to the total value of the project. It will not be a straight line since it is based on the value of activities and products to be completed each period (month). This curve is called the Performance Management Baseline or PMB. (Fig. 2.1, Performance Baseline Chart). It is the cumulative Planned Value of all the products and services our project staff should accomplish each period. This is $15M in the figure. Thus, it captures both the value and timeframe for every bit of work on the project. It is the reference line upon which we can measure the performance of the project each month. One way to view the Performance Management Baseline is to think of it as a conversion of our project funds to project deliverables, internal products, and support tasks. At the start of the project we have all our funds and no completed work so the Planned Value is zero; at the end we have no unspent funds but all our work is done – the Planned Value equals Budget at Completion (BAC).

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Applied Earned Value Management Module 2 – Basic Concepts of Earned Value Management

$18 M (CBB) Contingency $3 M (MR) $15 M (BAC) Project Planned Budget

Budget

CBB – Contract Budget Baseline BAC – Budget at Completion MR – Management Reserve

Month 0 Time Figure 2.1 – Performance Baseline Chart Creating a Performance Management Baseline is relatively easy if the project is properly planned using contemporary project planning and scheduling software. If the project’s activities are properly linked and scheduled, and resources with expected costs are assigned to each activity, the expected cost of resources for each activity set the value of the activity. If we sum the value of all the activities to be completed each month, and add that to all the previous months’ Planned Values we get a cumulative Planned Value. Plotting the cumulative Planned Value over time results in the Performance Management Baseline. The final cumulative Planned Value at the end of the project is the total value for all the activities from the start of the project to the end. This is the project’s budget at complete or BAC. This may not be the contract or project value. It is the expected cost of the all the resources needed to complete the planned work. Depending on the nature of the project this value might be an internal budget for the project or the cost to a customer for a cost-reimbursable contract.

Earned Value Management and Funds Management A project plan should not include financial reserves or profit. Financial reserves are there if needed. Profit should be realized if we execute the project properly. Thus we have two distinct budget amounts. We have a contract or project funding which is an agreed amount between buyer and seller, or sponsor and project manager. In a formal ANSI 748 EVMS this is called the contract budget base (CBB). We also have our project plan with some funds aside for contingencies, profit, or other categories. This budget is called the Budget at Complete (BAC) and represents what we hope to spend (or hopefully less) in completing the project work. The project plan expects to consume all the BAC but not use contingency budgets or profit to complete the work. In earned value management we use the term management reserve (MR) for contingency funds. Figure 2.1 shows that there is a $3M contingency in our project since we have been authorized to spend $18M but have only planned to spend $15M. MR is not part of the EVM performance baseline.

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Applied Earned Value Management Module 2 – Basic Concepts of Earned Value Management

In formal ANSI 748 EVM implementations there is a requirement to formally distribute the budget to the project team via the Work Breakdown Structure and/or the Organizational Breakdown Structure. This is done using a Work Authorization Document (WAD) and process. It can take some time to fully complete this process since it may involve several parties and all WBS elements. Since project managers want to get the near term work underway they will often initially just issue WADs for just the near term work. The funding that is not yet distributed is called Undistributed Budget (UB). Since eventually these funds will be distributed and used they are part of the BAC. They are just not yet assigned to someone on the project to manage. UB is also used for holding funds when a contract modification includes additional funds which need to be distributed later. In summary;  Available project budget = total funds less profit  Planned project expenditures = Available project budget less contingencies and management reserve funds  Planned project expenditures = distributed fund + undistributed budget

Earned Value – The Value of Completed Work We obtain Earned Value as the result of completing activities. This is the unique parameter of earned value management. When each activity is completed it contributes to the project’s Earned Value. At the beginning of the project the total Earned Value is zero. As each activity is completed it adds to the project’s total Earned Value. The amount of each activity’s Earned Value is equal to its Planned Value which was defined during the planning process. In practice, when lengthy activities are underway we use objective, or if necessary, subjective measures to provide partial Earned Value until the activity is complete. At the end of the project the total Earned Value equals the cumulative Planned Value (recall this is the value of the BAC) since all the scheduled work is done. Note that we have not yet introduced any discussion of actual cost or funds spent. A key element of Earned Value is that work has value equal to its budget, not what was spent completing the work. We do not need to know how much was spent or how long we have worked on an activity to determine its Earned Value.

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Applied Earned Value Management Module 2 – Basic Concepts of Earned Value Management

Project Authorized Budget $18 M (CBB) Contingency $3 M (MR) $15 M (BAC) Project Planned Budget

Planned Value is $8 M Budget

Earned Value is $4 M

Time Now Month 0 Time Month 18 Figure 2.2 – Performance Baseline Chart with Earned Value Once we know the value of the work completed we can also plot it on our Performance Management Baseline. This is shown in Fig 2.2, Performance Baseline Chart with Earned Value. We can compare the Planned Value with the Earned Value to know if we are completing the planned work at a sufficient rate. Our Planned Value was forecast at this time to be $8M, but unfortunately the Earned Value (value of all the work we can currently claim is completed) is only $4M.

Actual Cost – The Cost of Completing Work and Earning Value The third parameter of earned value is the Actual Cost. It is exactly what its name suggests. It is the cost of completing each activity, often reported in project financial reports using a Work Breakdown Structure (WBS). We compare the Actual Cost to the Earned Value to determine if what we spent was correct for the amount of work completed. This last comparison is one of the key benefits of earned value management. It is the ability to compare the cost of work completed with the value of the work completed. Traditional project management would have us look at a “spend plan” and our costs to- date (Fig. 2.3, Spend Plan versus Funds Spent) to see if we are spending at the correct rate and attempt to derive some useful insight from this knowledge. If we are below the spend plan management will ask questions like “Are we on schedule?”, “Will we underrun the project budget”, “Are there too few people on the project?” If we are above the spend plan management we will ask questions like “Do we have too many people on the project?”, “Are we having problems?”, “Will we overrun the budget?” Excellent questions! But, just based on the actual costs compared to the spend plan no one, not even the project manager, can answer these simple questions. Management will try to infer all sorts and kinds of information about progress, staffing levels, future expenditures, but the data yields no useful insight. Add the value of the work completed

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Applied Earned Value Management Module 2 – Basic Concepts of Earned Value Management

to the discussion and the first question to ask is “Have we spent more or less than the value of the completed work?” Based on the answer to that question, we can look further into the project to determine the “why” and help us forecast the project’s final outcome.

Project Authorized Budget $18 M (CBB) Contingency $3 M (MR) $15 M (BAC) Project Planned Budget

Budget Planned Expenditure Rate

Actual Funds Spent

Time Now Month 0 Time Month 18 Figure 2.3 – Spend Plan versus Funds Spent Relating Planned Value, Earned Value, and Actual Cost

Let’s put this in the context of a systems engineering effort. As a project manager I go to the systems engineering department and tell them I need a specification written. I describe the nature of the system and the customer’s requirements. They reply that the specification effort will be $40,000. I was expecting it to cost me about $25,000. They explain to me how they might not get good requirements and customer reviews might be slow in arriving. I put some of their concerns aside by telling them I will not have them start until the requirements meet their expectations and I will assume their risk of slow customer reviews. After some more discussion and negotiation we agree they will write the specification for $32,000. This is the Planned Value since we have agreed that the value of the specification is $32,000. Months later, they deliver the specification. The Earned Value is equal to the Planned Value of $32,000. A financial report tells me that they spent $37,000 writing the specification. This does not make it worth $37,000, just that they exceed their budget for some reason that may or may not be their fault. If, on the other hand, it had cost me only $27,000 the specification would still be worth $32,000. The value of the product is set at the outset.

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Applied Earned Value Management Module 2 – Basic Concepts of Earned Value Management

Review Questions

The following questions will assist you in reviewing concepts contained in this module. Answer the following questions: 1. How is the value of Planned Value established? 2. Explain how the Performance Management Baseline (PMB) curve is a time phased budget. 3. What is significant about the end point of the Performance Management Baseline (PMB) curve? 4. Why might the BAC be less than the value of our contract or company provided funds for the project? 5. Why can’t Earned Value be derived from the funds spent? 6. Why can’t Earned Value be derived from the amount of time spent on a task? 7. What will be the cumulative value of Earned Value at the end of the project? 8. Your project is underway and the cumulative value of EV is $34K and the cumulative value of PV is $31K. What statement can be made about the project? 9. Describe the problem faced by a project manager who simply compares his costs to-date with his planned costs-to-date. 10. Why should the effort to obtain the EVM parameter “Actual Cost” be a trivial effort?

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Applied Earned Value Management Module 3 – What is Required to Use Earned Value Management

Module 3 – What is Required to Use Earned Value Management When an organization says it does earned value management it is important to know how they do it. If they are your subcontractor you may rely on their earned value management performance reports to report how your project is going. If you are paying ‘progress payments” you may use their earned value management data to set the payment amount. If they are to provide you a key component you may use earned value management data to increase staff in anticipation. This course discusses the absolute minimum requirements for earned value management to be of use and to provide meaningful project performance information. Where necessary we will also mention ANSI 748 when its requirements impose specific requirements. If your application of EVM requires ANSI 748 compliance, please make a note of these requirements and also obtain the ANSI 748 standard. This course does not address all the requirements to meet various international earned value management system standards. Once it has been decided that earned value management has a place in your project or organization there are certain enablers that should be in place. Without these enablers in place the earned value management data will be of limited value, and worse, waste the effort to implement earned value management. The minimum requirements to implement earned value management are (a) to have a sound schedule, (b) a time-phased budget, (c) a means of collecting progress, and (d) a means of collecting cost information. The first two we get from doing good project planning; the second two we get during project execution. Of course, the following sections are not unique to earned value management; they simply represent sound project management planning. If you are going to use earned value management to measure how your project is executing, doesn’t it make sense to start with an executable plan? Laying the Foundation for EVM

Getting Organized EVM can be applied to any size effort or project. In general, EVM is applied to projects of some significant size and duration. Thus the project work may be broken into manageable pieces using a Work Breakdown Structure (WBS). If a significant staff is required, then the project staff is organized via an Organizational Breakdown Structure (OBS). Formal ANSI EVM requires a close tie between the two structures such that the work in the lowest EVM elements is performed by only one OBS element. That is, one OBS element may have work in several WBS elements, but no WBS element can have work done by more than one OBS element. Further, the EVM data can be summed through the hierarchy of either structure, resulting in the same total values, but with only applicable values at the intermediate levels. The EVM “Control Account” is the name given to each of the lowest levels of the WBS that are assigned to one OBS (See Fig. 3.1). The person responsible for the control account is the Control Account Manager or CAM. The CAM is given a defined scope of

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Applied Earned Value Management Module 3 – What is Required to Use Earned Value Management work, budget, and timeframe to perform the work. In effect, the CAM has a contract with the project manager.

Figure 3.1 – Summarizing Data through the OBS and WBS Because the Control Account work can span many months or years and be a significant amount of work, the CAM will further divide the work into Work Packages. The CAM will assign a portion of the Control Account budget to each Work Package, not to track cost at this level, but only to identify the value of the work package. Formal ANSI EVM requires that the total CAM budget be allocated; no reserve can be held by the CAM. These work packages become the detail level of our project planning and basis for determining earned value. These may be the activities in our project schedule, or one lower level of detail just used by the CAM.

Getting to a Sound Schedule We use earned value management as a means to measure our ability to follow a time We use earned value management as a means to measure our ability to follow a phased budget and schedule. It has a unique time phased budget and schedule. It has ability to quickly show when a plan is bad or a unique ability to quickly show when a can’t be followed. We expect to see cost and plan is bad or can’t be followed. schedule variances in project status reports since projects cannot predict all uncertainties and risks. But, nobody likes the attention caused by a problem project that has large cost and schedule variances. So one of the requirements is to start with a good project plan. We need a sound schedule and budget that is the result of well thought-out estimates of time and effort. Our project schedule should be developed through a sequence of planning activities that begin with the identification of internal products (specifications, drawings, test plans, etc.). See Fig. 3.2, The Project Planning Process. This should be followed with a list of

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Applied Earned Value Management Module 3 – What is Required to Use Earned Value Management activities to develop these products, activity sequencing (predecessors and successors), and estimates of activity resource requirements. Then an assessment of risk at the activity level should be performed to add risk mitigation and recovery activities where appropriate. (Those closest to the work are the best at identifying risk at a detail level.) Expected resources should be applied to the activities to determine their durations. Resources are people, material, subcontracted items, and any other items needed to complete an activity. When we obtain a commitment for these resources we can commit to the schedule and establish the Performance Management Baseline.

Review Statement Sets the Planned Value for of Work. Identify any risks Estimate cost of each activity. associated with resources for each any activities. activity.

Determine skill needed and form senior project team. Can Distribute the cost YES reordering of of each activity’s Creates the Time Phased activities reduce resources over its Budget. risk? timeframe.

Senior team NO defines internal products required.

Add risk recovery Obtain activities where commitment for prudent to activity resources. network. Determine activities needed to created internal and external products. Estimate effort and NO Commitment skills mix to equals plan? complete each activity. YES Agree on the sequence of work Creates the Performance and network of Management Baseline. activities. Estimate resources Plot cumulative PV available in each over time. activity’s timeframe.

Begin Project Execution.

Figure 3.2 – The Project Planning Process

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Applied Earned Value Management Module 3 – What is Required to Use Earned Value Management

The project manager may set some contingency funds aside. These are not included in the planning but if spent will not cause the expenditure of funds beyond the project budget. In earned value management the contingency fund is called Management Reserve (MR) and is not included in the Performance Management Baseline since it is not part of any planned activity. Risk mitigation activities that are planned but only executed if the risk materializes are still part of the plan and thus are part of the baseline. The BAC (which is the final cumulative Planned Value), plus the MR, equals the project’s authorized budget. As a formula: Project_authorized_budget = BAC + MR

Creating a Time-Phased Budget A time-phased budget is simply knowing how much we expect to spend each period on the work scheduled to be done at that time. From our detailed schedule and resource commitments it is relatively easy to get the time-phased budget. For each activity we can estimate the cost of the resources for the timeframe when they will be used. We do this for every activity over the whole project’s timeline. Planned Value is found by costing out the resources at the time we need them. This produces a time-phased budget tied to the schedule. See Fig 3.3. When plotted over time the time-phased budget is the Performance Management Baseline we introduced in Chapter 2 and is shown in Fig. 2.1. We have also determined the Planned Value for each activity. This is simply the total value of the resources planned and budgeted to complete the activity. If we add the Planned Value for all the activities, it should sum to the final value of the Performance Management Baseline since it is derived from value of all work within the schedule. Fig. 3.3. shows a “control account” with five work packages. The BAC for the control account is 92. The Planned Value for each work package is the sum of its monthly Planned Values.

Work Package Mar Apr May Jun Jul Aug Sep Oct 2 5 4 Work Package 1 2 4 7 7 3 Work Package 2 1 4 6 4 6 3 Work Package 3 9 4 Work Package 4 3 8 8 2 Work Package 5 4 10 15 13 19 18 11 2 Monthly Planned Value 4 14 29 42 61 79 90 92 Total Planned Value Figure 3.3 – Control Account with Five BAC = 92 Work Packages

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Applied Earned Value Management Module 3 – What is Required to Use Earned Value Management

Common Earned Value Management Work-in-Process Measurement Methods

One of the most important decisions during the project planning is deciding how to measure partially completed work. Most project activities require several weeks or months to complete. The goal of EVM is to determine how much work is done at the end of each period. Activities that have not started or are complete are not a challenge. The Earned Value for an activity that has not The Earned Value for an activity that started is zero. The earned value for an has not started in zero. The earned value activity that is complete is equal to its for an activity that is complete is equal Planned Value. But what about the activity to its Planned Value. that is underway? We have already stated that one cannot use time spent or funds spent to determine what has been done. Progress may or may not have been made. Some measurement scheme must be established before the work starts that is reasonably accurate and applicable to the activity. Selecting the method to be used is therefore a part of project planning. It is also an important decision since in formal ANSI EVM any changes to the project’s measurement methods must be approved. These measurement methods are known as Earned Value Techniques (EVTs), Work in Process Measures (WIPs), or other similar names. ANSI does not prescribe EVTs; it only requires that work be measured objectively and as accurately as possible. It remains for the project or organization to define those EVTs they wish to use and the rules for their application. EVTs generally fall into one of two classes, objective and subjective. Since our goal is to measure the work completed as accurately as possible the objective methods are preferred. While they may introduce some error, anyone using this EVT would arrive at the same Earned Value since it is objective. Subjective EVTs rely on someone’s assessment of the work done so these EVTs will vary from person to person. Still, they are a necessary part of the EVTs available since some work can only be subjectively estimated such as design efforts. We will discuss each of the most common EVTs and show how they vary in application. We will begin with the objective, preferred EVTs, starting with the simplest.

100% at Complete The total planned value is earned upon accomplishment of the completion milestone or activity. No subjective evaluation of status is required, but also there is no partial credit for work started or underway. This is useful for very short activities or work packages, typically ones that start and end in one reporting period. Either the work is done or not. As an example consider a work package called “Software Test” of 320 work hours over five weeks.

WORK PACKAGES WIP MEASURE BUDGET TOTAL 1 2 3 4 5 6 S/W TEST COMPLETE PV 0/100% 320 320 0 320 EV PV EV

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Applied Earned Value Management Module 3 – What is Required to Use Earned Value Management

This indicates that the work is planned to start this month, but it will not complete in the same month. It will complete in month two, so the total PV of 320 appears in month two. If this work package is executed as planned some work will start in month 1. However, even if the work is progressing on-schedule at the end of month 1 our EV will be zero because the work is not 100% complete. In month two the work completes. So, at the end of month 2 our EV is 320 which equals our PV. We do not record the actual cost at the work package level but we know that costs will have been incurred starting in month 1. From a project management point of view it will appear that no work was done in month 1, but money was spent. We accept this in EVM as a necessary consequence of applying this simple EVT, and this is why it’s best used for short tasks of one period.

50% Start, 50% Complete The 50% Start, 50% Complete EVT is used for activities of two periods, or three or more with caution. Fifty percent of the total planned value is earned when the work package begins and the 50% balance is earned upon completion. Like the 100% at complete, no subjective evaluation of work package status is required. This is particularly useful if half the work is planned for each period. As an example consider a work package called “Define System Requirements” with a budget of 800 work hours over 2 months.

WORK PACKAGES WIP MEASURE BUDGET TOTAL 1 2 3 4 5 6 DEFINE SYSTEM REQM'TS PV 50/50 % 800 800 400 400 EV PERFORM INITIAL DESIGN PV 50/50 % 1000 1000 500 0 500 EV

Using this work package the budget is divided equally into the two months the work package is planned to be executed. This illustrates a very important point; PV is distributed among the periods incrementally, not cumulatively. If this effort starts as planned, then EV of 400 will be accrued even if only a small portion of the work is completed. If more than 50%, but less than 100% of the work is completed in month 1, then the EV is still 400. Of course, if the work is completed in month 1 the EV is 800. So, this simple EVT can introduce some error in the EV but can be used in short tasks of two periods or so. This can also be used for work packages of three or more periods as shown in the “Perform Initial Design” task above. However, this requires planning for zero EV in the middle periods. Since some work should be done each period this introduces further inaccuracies in EV and so this method should not be used for more than two periods. For three-month tasks it is impossible to get credit in the middle month unless the whole work package is complete. A work package using a 50%/50% EVT that is proceeding on-schedule will show no earned value from the second period after it starts until it is completed. Remember, PV is distributed incrementally. When applying the 50/50 rule to our scheduled project we often find that work is not scheduled to start at the beginning of the first period and scheduled to complete at the end of the second period. To add accuracy, it would be better to assign PV values to each period to reflect how much of the work is actually planned to complete each period.

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Applied Earned Value Management Module 3 – What is Required to Use Earned Value Management

X % Start, 100-X% Complete The X % Start, 100-X% Complete is the complete generalization of the two previously discussed EVTs. The X% of total planned value is earned when the work package begins; the balance is earned upon completion. The CAM is free to select the percent planned to be completed the first period, with the balance to be completed in the last period. So if the schedule shows six weeks of work starting in the middle of month 1, a CAM might use a 33% Start, 67% Complete rule. The previous discussion for the 50%/50% rule applies, only the values of PV for each month are different. The above work packages are replanted below using a 30/70 and 40/60 allocation.

WORK PACKAGES WIP MEASURE BUDGET TOTAL 1 2 3 4 5 6 DEFINE SYSTEM REQM'TS PV 30%/70% 800 800 240 560 EV PERFORM INITIAL DESIGN PV 40%/60% 1000 1000 400 0 600 EV Value Milestones The value milestones EVT requires that a series of milestones be defined that are associated with the work package. Each of these milestones is “valued” as some portion of the work package budget and the values add to the total budget for the work package. When these milestones are completed the appropriate EV, equal to the milestone’s PV, is earned. For example, a work package titled “Prepare Configuration Management Plan” might use the following value milestones: Outline, draft plan, incorporate comments, plan approval. A plan for this work package might look like the following:

WORK PACKAGES WIP MEASURE BUDGET TOTAL 1 2 3 4 5 6 PREP CONFIG MGMT PLAN PV VALUE MILESTONE 1800 1800 300 0 800 0 600 100 EV PV EV The outline is planned for month 1, draft complete in month 3, complete incorporating comments in month 5, and final approval in month 6. The values shown in months 1, 3, 5, and 6 should reflect the likely effort needed to complete the milestone. Work will likely be done in months 2 and 4 but will not result in a completed milestone. In order to fully understand the CAM’s plan some supplemental information should show what the milestones are and how they will be judged as complete.

% Units Complete The % Units Complete is our most accurate EVT and should be the preferred EVT whenever possible. This is used when the work package progress can be measured by counting the number of completed units and comparing this to the total required. Thus the percent units complete is measured most accurately, by a physical count of work done. The units may not be deliverable units, just units. For example, test procedures written, units tested, modules designed, concrete poured, or subassemblies completed. The units must require approximately the same effort to complete. For example, consider 100 code reviews to be completed using 1000 staff-hours. Each code review is worth 10 staff- hours.

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Applied Earned Value Management Module 3 – What is Required to Use Earned Value Management

WORK PACKAGES WIP MEASURE BUDGET TOTAL 1 2 3 4 5 6 CODE REVIEWS PV % UNITS COMPL 1000 1000 100 200 400 300 EV PV EV

The above example shows that we plan to complete 10% of the reviews in month 1, 20% in month 2, etc. Recall, PV is planned incrementally. At the end of month 4 we plan to have completed 100% of the code reviews. What if some reviews are hard, requiring 20 staff-hours and some are easy, requiring only 5 staff-hours? Doesn’t this violate the rule about approximately equal effort? Yes. So the CAM could make three work packages from this one, really hard code reviews, average code reviews, and really easy code reviews. Then the CAM can apply the percent units complete EVT to each work package. Sometimes, though, we don’t know the exact number of units, but we can continually update our estimate of the total number of units to be completed. A better understanding of the total units will change the denominator used in calculating the percent done or planned to be done. Close coordination with the project manager, customer and stakeholders should be done so that everyone is aware of the currently understood number of the units and the scope of the work package and parent Control Account. There are various other objective EVTs in use but the above set is most common. Any EVT that accurately and objectively measures the work done satisfies the principles of EVM. For work that does not lend itself to these measurement schemes we are forced to use subjective measures of progress to obtain the EV for work underway.

Estimated Percent Complete The estimated percent complete EVT is used when we cannot measure physical units, but must rely on a subjective estimate of the work done and work remaining. Examples of these types of work include creative processes such as requirements definition, design tasks, or systems integration. Often one is left to make an educated guess as to the total work and work completed to arrive at a percent complete. Imagine a design engineer who claims to be 70% done, when the next day an extremely difficult design challenge is found and they now believe they are only 50% done. While this method lacks the precision of objective measures, for work that is completed only when the “problems” are solved this is as good a measure as possible. In planning this effort, the CAM should rely on experts to decide what percent progress should be planned for each period. During planning and execution usually the expert will think in total percent complete. The CAM must convert this to incremental values as with all EVM periodic data. The format of the work package plan will look like the Percent Units Complete example above. Tasks measured by this EVT can sometimes get stuck at 99% complete since previous estimates increased the total progress until 99% is reached but the work is still not complete.

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Applied Earned Value Management Module 3 – What is Required to Use Earned Value Management

Apportioned Effort While not really subjective, we list Apportioned Effort as a less desirable EVT. Apportioned Effort is used when one (dependent) work package cannot be directly measured but its progress is paced by the work completed in another (independent) work package. This work package can be in the same Cost Account or a different Cost Account. An example might be “quality service” or “quality testing” where the progress made in the “quality” work package is dependent upon the progress made in producing units to review or test. Thus the quality work package is paced by the progress elsewhere. Planning this type of work package requires close coordination between the two work package timeframes, and the unit of measure used in the independent work package. The example below shows two work packages. QA S/W Design Signoff is apportioned to S/W Detail Design.

WORK PACKAGES WIP MEASURE BUDGET TOTAL 1 2 3 4 5 6 QA S/W DESIGN SIGNOFF PV APPORTIONED 90 90 9 18 23 18 13 9 EV

WORK PACKAGES WIP MEASURE BUDGET TOTAL 1 2 3 4 5 6 S/W DETAIL DESIGN PV ESTIMATED % 900 900 90 180 225 180 135 90 EV

Level of Effort

Level of Effort is a necessary EVT since some project tasks do not have a schedule; they simply provide services to the rest of the project team. Examples of these Level of Effort tasks might be shipping, running an integration lab, configuration management, quality, project management, running a project library, maintaining the project collaboration website. Each of these activities are necessary to the project team but may not have a measurable schedule. Since formal EVM requires all direct cost tasks on a project be part of the EVM baseline, we need to include these tasks. Level of Effort (LOE) is the EVT used for these types of tasks. In the project management community LOE can mean many things: the level of workforce planned over a period of time, a task whose duration expands or shrinks with related tasks, or an EVT. In EVM we use the definition: an EVT applied to work packages that have no measurable schedule. It is important to remember that while LOE work packages cannot by their nature be ahead or behind schedule, they can have cost overruns and under runs. So it is important to plan LOE work packages with the planned cost for the LOE activities. The following example shows a work package planned using LOE. Note that the Planned Value for each month is different and based on the number of staff-hours planned to use for the work.

WORK PACKAGES WIP MEASURE BUDGET TOTAL 1 2 3 4 5 6 OPERATE S/W LIBRARY PV LVL OF EFFORT 840 840 120 160 190 200 130 40 EV PV EV

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Applied Earned Value Management Module 3 – What is Required to Use Earned Value Management

Level of effort is the least preferred EVT since it cannot show any schedule information. Work packages get EV just for being underway. ANSI 748 requires that use of the LOE EVT be minimized to only those tasks that cannot have progress measured.

Review Questions The following questions will assist you in reviewing concepts contained in this module. Answer the following questions:

1. Describe the sequence of planning activities to produce a sound schedule and cost estimate.

2. What is the EVM term for contingency funds?

3. Why are the funds that are set aside for risks or contingency not part of the EVM Performance Management Baseline?

4. How is the Planned Value for each project activity determined as a consequence of project planning?

5. Why is it necessary to use EVTs in planning work packages?

6. What is the most accurate EVT?

7. What is the least accurate EVT and why?

8. Explain the problem in using 50%/50% or X%/100-X% EVTs in lengthy work packages.

9. You have a work package that requires you to build 87 units. What is the best EVT to use to measure your progress?

10. It is estimated that you will have to create 20 prototypes for lab testing. If all goes well perhaps testing will be finished after using only 16 prototypes. What is the best EVT to use to measure your progress in building prototypes?

11. You have to review and approved ten design packages over a two-month period. What is the best EVT to use for this work package?

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Applied Earned Value Management Module 4 – Capturing the Plan with EVM

Module 4 – Capturing the Plan with EVM Introduction to the Project Scenario

Beginning with this section of the course we will have you develop a Performance Management Baseline for a project scenario. Later we will begin execution of this project so you can see how your baseline reflects the planning and the results of the EVTs you selected. A formal ANSI 748 compliant EVMS requires each CAM have a work authorization that defines the work scope, timeframe, and budget for the assigned work. For our project scenario you are a CAM who is just been assigned to the project. The previous CAM began the planning but has been re-assigned. Your work authorization is: WORK AUTHORIZATION DOCUMENT

 Develop the human interface specification (screens, menus, etc.)  Obtain customer specification approval  Design, develop, test, integrate, the needed software  Perform “acceptance testing” with the customer  Perform project management for the above work  Spend no more than 20,000 staff-hours  Complete all work within 12 months  Start date: Jan 1  Finish date: Dec 31 The project planning was completed by the previous Software Team Leader (Control Account Manager). She has identified appropriate work packages, scheduled each one, and allocated portions of the total budget to each work package. She also identified the completion criterion for each work package. She did not complete creating the earned value baseline before taking her new assignment.

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Applied Earned Value Management Module 4 – Capturing the Plan with EVM

Learning Activity 1: Introduction to the EzEVM Spreadsheet

WORK PACKAGE BUDGET START END COMPLETION EVENT DATE DATE

System Software 4000 Jan, 8 Mar, 10 Complete 25 Spec Specification Subsections

System Engineering 500 Mar, 12 Mar, 21 Signed Approval Approval

Top Level Design 2000 April, 8 May, 24 25 Function Points Designed

Detail Software Design 4000 May, 1 July, 30 100 Routines Designed

Coding 1000 June, Sept, 22 About 30,000 lines of code 10

Unit/Integration Testing 1000 July, 2 Sept, 26 Routines Tested

Interface Testing 500 Sept, 7 Sept, 21 Interfaces Tested

Functional Testing 5000 Oct, 9 Dec, 15 100 Test Procedures Passed

Systems Sell Off 400 Dec, 2 Dec, 18 System Acceptance Testing Completed

Project Management 1600 Jan, 1 Dec, 18 Ongoing

Total hours 20000

To help with the math and the charting you will be using EzEVM™ MS Excel workbook templates prepared by Management Technologies. Once you download this file from your course CD and open it you will see the License Agreement. You must have macros enabled. If they are not enabled the workbook will detect this and tell you how to enable them (per MS Excel 2002). Once you review the License Agreement click on “I AGREE” and the workbook will open. (You only have to agree once.) See Appendix B for more detailed instructions to use the EzEVM™ MS Excel workbook

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Applied Earned Value Management Module 4 – Capturing the Plan with EVM

Click on the worksheet “PLANNING” and you will see a spreadsheet similar to those used to illustrate the EVTs. You should see the following in the upper left corner:

AUTH. BUDGET-> 20000 1/3/06 1/31/06 2/28/06 3/31/06 4/30/06 5/31/06 6/30/06 1 2 3 4 5 6 WORK PACKAGES WIP MEASURE BUDGET TOTAL

SYS S/W SPEC PV % Units Complete 4000 4000 1600 1600 800 25 @ 160h per EV

SYSTEM ENG. APV'D PV 0%/100% 500 500 500 EV

TOP LEVEL DESIGN PV 2000 EV

DETAIL DESIGN PV 4000 EV

The worksheet is protected so that you can only place the cursor in cells that you should need to access. The work packages and budgets have already been placed into the worksheet in columns A and D through row 24. Your assignment is to determine the best EVT for each of the work packages shown and distribute the budget for the work package in the rows labeled PV (Column B, even rows). The first two have been done as an example.

Example of Work Package Planning System Engineering Spec has a budget of 4,000 hours and is planned to be performed from January 8 through March 10. So work will be done over a three-month period. It was also stated that 25 specifications are to be produced. With this information the Percent Units Complete EVT seems to be the best measure. Three months is too long for an X%/100-X% type of measure. Your predecessor decided that ten specifications would be completed in both January and February, and five in March. Based upon the budget of 4000 hours and 25 specifications, each specification is worth 160 hours. So the PV for January, February, and March is 1600, 1600, and 800. The “PV” cells are color coded to help plan the work package correctly. Per ANSI 748 all of the work package budget must be planned so “PV” is green if this has occurred, red if more budget is planned that allocated, and no color means more budget needs to be allocated. The total budget planned is shown in column E, which equals the budget in column D. Systems Engineering Approval occurs entirely within March for a budget of 500 hours. Since this is a short time span your predecessor selected 100% Complete as the EVT. Therefore, all 500 hours appear in March as PV, and the “PV” cell is green. The remaining work packages are left for you, as the new CAM, to plan. You should go through the following thought processes in this exercise for each work package.  Review the work package duration to determine which EVT methods will work.  Determine if the work package identifies something you can count.  Considering both the time span, nature of the work (as best you can), start and end dates (do you have a full month to work on the task?), select your

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Applied Earned Value Management Module 4 – Capturing the Plan with EVM

EVT for each work package. A pull down menu is available if you mouse over the cells in column C, even numbered rows. Not all EVTs are listed. Pick from the list. Try to use a mix of EVTs to learn how they operate as the project executes.  Distribute the budget over the time span per the rules of the EVT method you chose. Remember column D and E must be equal (the “PV” cell will be green). Complete your planning of all the work packages. There is no absolute correct solution. As in a real project you will have planned your work packages based upon your understanding of the work, your past experiences, and how you measure these types of work packages. This is your plan. As in a real project, the correct plan is the plan you develop and are accountable to achieve, using the EVT you selected to measure your cost and schedule performance. Fig.4.1 shows the course author’s solution. Your solution may be different. The course solution should not be viewed as an appropriate solution to implement the baseline. Several poor choices were intentionally made to provide for discussion during the project’s execution.

Figure 4.1 –Learning Activity 1 Solution

 Learning Activity 1 Complete

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Applied Earned Value Management Module 4 – Capturing the Plan with EVM

In addition to the work packages that were planned for you in the template, the course author planned the following work packages using the EVT shown for the reasons stated.

WORK PACKAGE EVT RATIONAL

Top Level Design 50/50 Since the task is only two months and the work is split equally with about 3 weeks of work in each month this was an easy EVT to employ. The fact that there is a quantity of 25 function points did not seem worth the effort to use – but this will haunt us later.

Detail Design Percent Units Since we can count how many of the 100 Complete routines are designed we can use this measure. An X%/100-X% would force zero PV to be planned for the middle month of June. Our plan is to have 30%, 40% and 30% done each of the three months (note incremental values are used.)

Coding Estimated I have used an estimated percent complete Percent since the quantity of code is estimated. This way I can adjust the percentage based upon the current estimate of the total code required as the project progresses. I have planned on 20%, 40%, 30%, and 10% to be completed over each of the four months.

Unit/Integration Testing 50%/50% This was selected to illustrate the problem with using such EVTs over a three or more month effort. Note that a zero must be entered in all periods except the first and last. One might have assumed the reference to “routines” might refer to the 100 routines mentioned in Detail Design in which case an allocation of planned percent complete could have been used.

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Applied Earned Value Management Module 4 – Capturing the Plan with EVM

WORK PACKAGE EVT RATIONAL

Interface Testing 0%/100% Since this is only one month and there is nothing enumerated this is an appropriate measure. If the number of interfaces were known or estimated a percent should be used even if only one-month long.

Functional Testing 50%/50% This is used for illustration. An EVT that allows PV to be entered for each month would be better.

System Sell Off 0%/100% Since this a one-month activity and milestone the 0%/100% EVT is applicable. If more were known about the sell off activity an EVT that allows partial credit might be used.

Program Mgmt Level of effort Since program management is a support task the LOE EVT was selected. However, note that the budget of 1600 hours was not uniformly planned across the project period. The PV for LOE tasks should consider how much effort (hours, dollars, etc.) might be used. While LOE cannot have a schedule variance, it can have a cost variance if the hours or dollars used are more or less than the PV. (More later on this.) So larger PV appears at times in the project when greater effort or staff might be needed to perform program management functions.

Reviewing the Plan While each CAM will have created their own plan there are some basic ANSI 748 EVM rules we need to make sure are followed. The EzEVM template will help enforce these rules. One, all the budget (20,000 hours) must be distributed among work packages and planning packages. A CAM may not have a reserve of funds of hours. There are no planning packages in the scenario so the sum of work package budgets must equal 20,000. (Cells D1 and D24 are compared and D24 is green if this condition is met.) Two, all the budget for a work package must be planned. This is a restatement of the rule that the CAM has to plan all their funds. Column E, even rows, is a sum of the budgets planned for each month to the right. Column D (budget) and Column E (sum of planned budgets) is compared and Column E is green if the totals agree. Click on the Excel tab “PMB”. Congratulations you have created your first Performance Management Baseline! It is simply a plot of the cumulative Planned Value (or BCWS)

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Applied Earned Value Management Module 4 – Capturing the Plan with EVM over time from your Planning worksheet (row 24). A Performance Management Baseline is also shown in Fig. 4.2.

PERFORMANCE MEASUREMENT BASELINE

20000

15000

PLAN (PV)

10000 PLANNED VALUE(HOURS) EARNEDPLANNED

5000

0 1/3/06 1/31/06 2/28/06 3/31/06 4/30/06 5/31/06 6/30/06 7/31/06 8/31/06 9/30/06 10/31/06 11/30/06 12/31/06 TIME Figure 4.2 –Performance Measurement Baseline If you have done you planning correctly the line should start at zero and end at 20,000, and gradually slope upward or possibly be level for a month or two. It should not go down. This is your time phased budget represented in hours. It shows how much you plan to spend to complete the work you have planned for each month, cumulative. Note however, it is somewhat determined by the EVTs you have selected as well. If you see a flat portion of the curve it means you have a plan that will not allow you to show progress even if you are on schedule. Look into the detail planning for your work packages and you will likely find you have used a, X%/100-X% over a three-month period or longer.

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Applied Earned Value Management Module 5 – Planning Subcontractors, Material, Other Direct Costs, & Overhead Costs Module 5 – Planning Subcontractors, Material, Other Direct Costs, & Overhead Costs You can simply apply EVM to the labor intensive portions of your project. However, if you are addressing ANSI 748 all the funds and all the work scope in your project must be in your EVM baseline. This means that we have to use dollars, Euros, or other currency as the common unit of measure. It is beyond the scope of this course to address the various issues that might be faced when including theses project elements into the overall EVM baseline. We will touch on some of the common approaches. Other Direct Costs

Other Direct Costs (ODC) are items which the project has to pay for directly that are not otherwise labor, material, or subcontractors. For example, a project may have to travel to quarterly meetings. These items are planned in a work package at the time they are expected to be needed. So if you allocate $3,200 for travel costs for one year of quarterly meetings, $800 would be the Planned Value for each meeting and this amount would appear in the work package plan in the months the meetings were planned. Overhead (Indirect) Costs

Indirect costs need to be planned and accounted for in an ANSI 748 EVM implementation. These costs are planned at the level where the organization applies them. This could be on the whole project or depending on the site where the work is done, or what departments do the work and their rate. Regardless, the basic approach is to forecast the overhead costs to be borne by the project as an additional cost item month by month. This amount becomes part of the baseline at the level the overhead costs are incurred and recorded (whole project, department, or control account, etc.) Applying EVM to Subcontractor Efforts

If you are lucky enough you might have a subcontractor who is familiar with EVM. In this case you can simply ask them to provide you their EVM data for the work you have asked them to do. Of course, if their subcontract is fixed price they don’t have to give you their cost data. In planning subcontractor efforts, you place the value of their scheduled effort in the months when the effort or product is to be provided. This is highly dependent on what their role is and what they provide (service, sub-assemblies, etc.). Material

Planning material in EVM can be a complicated issue since the effort to select, acquire, receive, use, and pay for the material may be spread over a considerable time. The EVM approach to material is to only consider the material receipt and usage. The efforts to select the material, obtain quotes, select the vendor, place the purchase order, receive the material, and inspect it are typically done as a labor effort in a work package. But, since a formal ANSI 748 EVM requires all funds be included in the baseline, we must find a way to address material. First the material must be valued. A single complex item is

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Applied Earned Value Management Module 5 – Planning Subcontractors, Material, Other Direct Costs, & Overhead Costs valued by its purchase price. When material is purchased and used in lots, the lots are valued. When individual items are used, they are prorated on the price paid for all the like items bought. The value of the item(s) is placed in a material work package at the time when the material is planned to be used by the project. In this way, if the material is used at the right point in time it is a further indication that the project is on-schedule.

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Applied Earned Value Management Module 6 – Collecting and Analyzing EVM Data

Module 6 – Collecting and Analyzing EVM Data The Project Begins Execution

We will now begin to execute the project that we previously planned and baselined using the EzEVM template. As we do this we’ll see how the various EVTs that we selected provide a more or less accurate measure of progress for the work packages. We will follow the project through the first three months to get familiar with EVM as used in the execution phase and how to record our progress in the workbook. After that, we will alternate between a discussion of EVM analysis tools and recording additional project progress while discussing what EVM analysis is showing us about the project. Learning Activity 2: Translating Project Performance into EVM Data

Please select the STATUS tab in your EzEVM template. You should see the plan that you developed on the PLANNING sheet during the planning phase of this course. The only difference between the PLANNING worksheet and the STATUS worksheet are the cells you are able to select. This is an implementation of the EVM rule that once you set your baseline in place it should not be changed without some formal approval process. You will not be able to alter the data in the Planning Data (even rows 4-22).

Collecting the EVM Data for January The project that you planned is now in execution. Each month you will receive a written status report from your project team that describes the progress they have made and problems they have encountered. In addition, you will be given the number of work-hours spent on the project. Let’s get the first month’s information.

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Applied Earned Value Management Module 6 – Collecting and Analyzing EVM Data

MONTH ENDING JANUARY Narrative: Functional specification preparation started on schedule.

WORK PACKAGE STATUS

System Software Specification Specification preparation started, three completed this month.

System Engineering Approval

Top Level Design

Detail Software Design

Coding

Unit/Integration Testing

Interface Testing

Functional Testing

Systems Sell Off

Project Management Started

Financial: 500 hours spent this month

The project has started. The first two work packages were already planned in the template; System Software Specification and System Engineering Approval. System Software Specification has started, and three of the specifications are complete. How shall we show this? Since we used a percent units complete and we have 3 of the 25 complete we can claim 12% of this effort is complete, or 480 hours. We could also obtain the same value by prorating the 25 specifications over 4000 hours, getting 160 hours per spec. Three specs are worth 480. Enter 480 in cell F5. It is important to note that earned value of 480 was determined without knowing how much has been spent on the task. In fact, since it is a work package, we don’t even have means of knowing what was spent on just this work package. Looking at the work package’s PV and EV for this month we see we planned to complete 10 and we completed 3; so the planned value was 1600, and the earned value is 480. We are behind in this work package. System Engineering Approval was not to start, and has not started so there is no earned value to claim. The project status report also states that project management has started. Did you plan this as a level of effort (LOE) task? LOE is a typical EVT for tasks like project management which have no discrete milestones or deliverables. The course’s author planned 200 hours as the PV. Since the task is started the EV is 200. For LOE tasks the EV always equals the PV, EV is won just by being there. If you did not plan it as LOE

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Applied Earned Value Management Module 6 – Collecting and Analyzing EVM Data please re-plan it as LOE for the experience as the project gets underway. (You will need to select the PLANNING tab to do this.) You should have entered EV for all the activities underway. What about the cost of getting this work done? The report says 500 hours were spent getting this work done. Enter 500 in F27, the current period AC for January. This is the row where you will record the hours spent each month as the project proceeds. You are done entering data. To perform EVM, once the planning is done, all you need to do is record the EV for each work package underway according to the EVT rules and status of the work package and the cost (hours or dollars) to perform the all the control account work. The worksheet you have been using is equivalent to a control account. EVM only requires that one review the cost for the control account, not the work packages within it. Therefore, you do not need to enter the cost for each work package (and there is no place to do so in the template). See Fig 6.1 for the course author’s solution to recording the January project status in EVM terms. Since the System Software Spec work package was pre-planned for you the value of EV will be the same for you. However, the EV for the Project Management work package was determined by you during the planning and is likely different. As an LOE work package, the value of EV must equal the value of PV. Since our values will differ for Project Management PV and EV, so will the totals in rows 25 and 26, and 29 and 30.

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Applied Earned Value Management Module 6 – Collecting and Analyzing EVM Data

Figure 6.1 – January Solution

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Applied Earned Value Management Module 6 – Collecting and Analyzing EVM Data

Collecting the EVM Data for February Here is the control account status for February. Please enter the necessary EV and AC data for February (column G). Remember, you must be on the STATUS worksheet to enter these data. MONTH ENDING FEBRUARY Narrative: Total of ten software specifications done, seven this month. All specifications will be done next month, per schedule. Customer advised of review next month.

WORK PACKAGE STATUS

System Software Specification Spec preparation continues, seven more completed this month (total ten).

System Engineering Approval

Top Level Design

Detail Design

Coding

Unit/Integration Testing

Interface Testing

Functional Testing

Systems Sell Off

Project Management Continues

Financial: 1300 hours spent this month

You should have entered 1120 in G5 (7 * 160), and the value in G23 that is in G24 (if you selected LOE for the work package). See the shaded green “EV” in the odd rows, column B? If “EV” is clear the work package has not started (no EV entered), if shaded green it’s underway (some EV), if solid green the work package is complete (EV = PV), if red the sum of EV is greater than PV (violating an EVM principle). Remember to enter the values for program management. As a LOE task you just enter the PV value as EV. Enter the cost of the work, 1300 hours, in row 27, column G. The project is having some startup problems. Look at the cumulative values of PV, EV and AC in rows 29-31. There should be about 3500 hours of PV; you have about 1,900 hours of EV, and AC of 1,800 hours. Your PV and EV may differ due to your plan for program management. You planned to have about 3,500 hours of work completed, you have 1,900 hours (or so) of work done, and spent 1800 hours doing it. The cost is about

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Applied Earned Value Management Module 6 – Collecting and Analyzing EVM Data right but you have only done about ½ the work you planned to have done by now. Maybe one should not have planned to complete ten specifications in month one, but this was given to you in the template. See Fig 6.2 for the course author’s solution to recording the February project status in EVM terms. Like January, the System Software Spec work package was pre-planned for you so the value of EV will be the same for you. Your value of EV for project management is likely different. Since our values will differ for Project Management PV and EV, so will the totals in rows 25 and 26, and 29 and 30.

Figure 6.2 – February Solution

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Applied Earned Value Management Module 6 – Collecting and Analyzing EVM Data

Collecting the EVM Data for March MONTH ENDING MARCH Narrative: All system specifications should have completed. Difficulties in specifying the interrupt response priority is delaying completion of one specification.

WORK PACKAGE STATUS

System Software Specification Work continues, 14 specifications completed this month, one still in work (24 done).

System Engineering Approval Not done due to delay in specifications.

Top Level Design

Detail Design

Coding

WORK PACKAGE STATUS

Unit/Integration Testing

Interface Testing

Functional Testing

Systems Sell Off

Project Management Continues

Financial: 2600 hours spent this month

The optimism in the February report has not been realized. Yet, much work was accomplished. Fourteen specifications were completed, only one remains. The appropriate EV for this work package is 2,240 (14*160). What about System Eng. Apv’d? It was not done, so enter zero in H7. You used a 0%/100% rule for this work package. Since it is not done, zero is the correct value. Enter your EV for the program management and the hours spent in row 27. At this point you should have about 5,000 hours of PV, about 4,340 hours of EV, and 4,400 hours of AC. You are closer to the plan and the costs are still in line with the work that is done. You have not finished one spec and have not had Systems Engineering Approval. Select the tab marked “PMB”. There is the performance of your control account to date. The PV line is there from your planning. It is your Performance Measurement Baseline (PMB). Your EV and AC are also shown. The EV line is considerably below the PV line – www.prodevia.com 47

Applied Earned Value Management Module 6 – Collecting and Analyzing EVM Data you are behind schedule. The EV and AC lines are close – you have spent about the right amount for the work you have done. Take the end point of the EV line and look to left where that value intersects the PV line. This shows that your current progress should have been done about two weeks previously. You are about two weeks behind schedule. While you can visualize the project with this PMB chart, you can perform more accurate analysis using the common EVM analytical tools. See Fig 6.3 for the course author’s solution to recording the March project status in EVM terms. Your value of EV for System S/W Spec will be 2240. As we continue on with the scenario your totals and the course author’s will diverge since we will soon encounter months where you had complete freedom to plan your work packages and select your EVTs. Therefore, your totals will vary. Figure 6.4 shows the author’s Performance Baseline Curve. Your PMB should be almost identical except for the small differences from our respective values of PV and EV for the Project Management Work Package. 

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Applied Earned Value Management Module 6 – Collecting and Analyzing EVM Data

Figure 6.3 – March Solution

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Applied Earned Value Management Module 6 – Collecting and Analyzing EVM Data

PERFORMANCE MEASUREMENT BASELINE

20000

15000

PLAN (PV)

EARNED VALUE (EV)

COST (AC)

10000 NNE E D ALUEHO S) R OU E(H U L VA ED N R EA ED N AN L P

5000

0 1/3/06 1/31/06 2/28/06 3/31/06 4/30/06 5/31/06 6/30/06 7/31/06 8/31/06 9/30/06 10/31/06 11/30/06 12/31/06 TIME

Figure 6.4 – Performance Baseline Curve  Learning Activity 2 Complete

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Applied Earned Value Management Module 7 – Common Analytical Products from Earned Value Management Module 7 – Common Analytical Products from Earned Value Management Earned value management provides powerful tools to analyze project performance. With simply four parameters, Planned Value, Earned Value, Actual Cost, and Budget at Complete we can compute and plot a variety of metrics to help know how the project is doing and how it is likely to end. Cost Variance and Schedule Variance

We can determine cost and schedule variances from the three basic earned value management parameters: Planned Value, Earned Value, and Actual Cost. Since we know the work that is completed in economic terms (dollars or staff-hours of Earned Value) we can compare this with the value of Actual Cost and Planned Value. By subtracting Actual Cost from Earned Value we can calculate a cost variance (formula 1)

CV = EV – AC (Formula 1)

Note that the arrangement of the terms results in a negative cost variance if we are overrun; that is, the Actual Cost spent is more than the Earned Value. Likewise, if we have spent less than the value of the completed work (Actual Cost < Earned Value) we have a positive cost variance, or an underrun condition. A graphical form of cost variance is shown in Fig. 7.1, Illustration of Cost Variance and Schedule Variance. Using this formula, we can speak of being dollars or staff-hours above or below budget, or overrun or underrun. It is important to understand how these statements about our expenditures are much more meaningful with earned value management. Without earned value management we would likely compare what we spent with our financial spend plan and speak of being under-spent or over-spent.

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Applied Earned Value Management Module 7 – Common Analytical Products from Earned Value Management

Project Authorized Budget $18 M (CBB) Contingency $3 M (MR) $15 M (BAC) Project Planned Budget

Planned Value is $8 M Budget

Actual Cost is $5 M

Schedule Variance ($)

Cost Variance

Earned Value is $4 M

Time Now Month 0 Time Month 18 Figure 7.1 – Illustration of Cost Variance and Schedule Variance Using the data from the Fig. 7.1 we have an Earned Value of $4M and an Actual Cost of $5M, so our CV is $4–$5 or –$1M. A very important point to note is that during our planning we expected to complete $8M of work and would expect therefore to spend $8M. If we did not use earned value management, we would see our Actual cost of $5M and assume we are under spent. However, using earned value management we know the Earned Value of the completed work is only $4M. So we are not under spent, we are overspent by $1M! Therein lies the power of earned value management, we can compare what we spent with what we accomplished, not what we planned to have spent at this time! We can discuss schedule variance in economic terms (staff-hours, dollars) using the vertical Performance Management Baseline axis, and in units of time (days, weeks, months) using the horizontal axis. Using the vertical axis is the traditional schedule variance and is universally understood by earned value management practitioners. Use of information from the horizontal axis is relatively new and is just beginning to see acceptance within the earned value management community. We will discuss both and use $ or “t” as a subscript to indicate whether we are referring to schedule variance on the vertical axis ($) or the horizontal axis (t). First we will discuss the conventional concept of schedule variance. When referring to schedule variance computed from staff-hours or dollars we will use the term: SV$. By subtracting Planned Value from Earned Value we can calculate a schedule variance (formula 2):

SV$  EV  PV (Formula 2)

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Applied Earned Value Management Module 7 – Common Analytical Products from Earned Value Management

Note that the arrangement of the terms results in a negative schedule variance if we are behind schedule, that is, the current Planned Value is more than our current Earned Value. Likewise, if we have completed more work than planned then our current Earned Value is greater than our Planned Value, resulting in a positive schedule variance. In using this formula, we can speak of being dollars or staff-hours ahead of, or behind, schedule. See again, Fig 7.1. Like the cost variance above, we can now speak of both cost and schedule is economic terms, dollars or staff-hours of variance. However, this type of schedule variance does not immediately tell us if the schedule variance is one week, one month, or more in units of time.

Using the data from the Fig. 7.1 we have an Earned Value of $4M and a Planned Value of $8M, so our SV$ is $8M-$4M or –$4M. Traditionally, using earned value management we would answer the question “Is the project on schedule?”, by answering “No, it is behind schedule by $4M.” This, of course, is not an intuitive answer to question about schedule or time. Most people expect an answer like “I am behind schedule by 3 months.” In general, only those people familiar with earned value management would understand that you can be behind schedule by a dollar amount. The concept of Earned Schedule helps us answer the schedule question with a more intuitive answer, and one that does not require an understanding of earned value management to comprehend. (Note that earned schedule is both a new earned value management term and a title for this new concept in earned value management.) To understand our schedule variance in units of time we can examine the Performance Management Baseline and determine the point in time where the Planned Value equals

Project Authorized Budget $18 M (CBB) Contingency $3 M (MR) $15 M (BAC) Project Planned Budget

Planned Value is $8 M Budget

Actual Cost is $5 M

Earned Value is $4 M Earned Schedule 6 10

Time Now Month 0 Time Month 18 Earned Schedule Schedule Variance (time) Actual Time the current Earned Value, (see Fig. 7.2, Earned Schedule Concept).

Figure 7.2 – Earned Schedule Concept

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Applied Earned Value Management Module 7 – Common Analytical Products from Earned Value Management

By dropping a line down to the time axis we can see when the current Earned Value appears on the Planned Value line and make a statement about being days, weeks, or months ahead of, or behind, schedule. The term unique to this point on the time axis is Earned Schedule. (The earned schedule1 technique is a concept developed by Mr. Walt Lipke2. Kym Henderson3 retroactively applied it to six completed IT projects and found it of value. Subsequently Stephan Vandevoorde and Prof. Mario Vanhoucke Ph.D., performed research on 1,000 simulated project networks of varying topology and complexity and statistically validated the Earned Schedule concept and analysis tools4). Rather than just looking at schedule performance using the value of work, earned schedule also looks at when the work was to be completed. It is the amount of “schedule time” we have “earned” by completing work. Another new term we obtain from the horizontal axis is simply the Actual Time (AT) that has expired since the project started. We now can compute a schedule variance on the time axis using Earned Schedule and Actual Time.

SVt  ES  AT (Formula 3)

This formula subtracts actual amount of time spent on the project from the amount of schedule time we earned by the completion of work. So if we have completed the amount of work that was expected in month 6 but it is now month 10, the SVt is 6-10 or –4 months. We are four months behind schedule (see Fig. 7.2.) When referring to schedule variance computed from Earned Schedule and Actual Time we will use the term: SVt. Let’s see how the project is doing at the end of April.

1 Earned Schedule when capitalized refers to the unique parameters associated with earned schedule. Lower case refers to the earned schedule technique of earned value management. 2 Lipke, Walt; March 2003, “Schedule is Different” The Measurable News, PMI College of Performance Management: 10 3 Henderson, Kym. Summer 2003, “Earned Schedule: A Breakthrough Extension to Earned Value Theory? A Retrospective Analysis of Real Project Data” The Measurable News, PMI College of Performance Management: 13 4 Vandevoorde St., Vanhoucke M., A Comparison of different project duration forecasting methods using earned value metrics, Ghent University, working paper 2005/312, June 2005 www.prodevia.com 54

Applied Earned Value Management Module 7 – Common Analytical Products from Earned Value Management Learning Activity 3: Understanding Cost and Schedule Variances MONTH ENDING APRIL Narrative: Systems Engineering has approved all of the earlier 24 specifications and is looking at the last one. You have started top level design at some risk. Recall that the last specification was held up due to response time concerns. Systems should approve this last specification early next month. You will be able to complete the top level design on schedule.

WORK PACKAGE STATUS

System Software Specification All complete.

System Engineering Approval Systems has reviewed 24 of 25 software specifications and has approved them.

Top Level Design Top Level Design has begun at some risk, awaiting approval of the specification. Three are complete.

Detail Design

Coding

Unit/Integration Testing

Interface Testing

Functional Testing

Systems Sell Off

Project Management Continues

Financial: 1325 hours spent this month

Enter the applicable values of EV for each of the tasks underway. For System Software Specification you should have entered 160 in April. While you didn’t have any PV for the month you have EV of 160 because it finished late. What about System Eng. Apv’d? It is still not done, even though 24 of the 25 specs have been review and approved. Enter zero in I7. The course author used the 0%/100% rule for this work package in your template to illustrate a point. Since the work package is not done, zero is the correct value. So here is a lesson in selecting EVTs. The 0%/100% EVT was appealing to use for this one month work package. You are over 90% done (24/25). But you set the rules during planning and 0%/100% means you have to be 100% done to get any EV. Since you knew

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Applied Earned Value Management Module 7 – Common Analytical Products from Earned Value Management you had 25 specs to review you should have picked percent units complete. Had you done that you could have entered 480 (500*24/25) as the EV. When you have something to count, it’s always best to plan to count the units complete. Top Level Design has begun. This is the first work package where you were able to select your EVT. The course author selected the 50/50 method so 50% of the PV is earned if any work is complete. Three designs are complete. What method did you select? If you selected a variant of X%/100-X% then enter the percent for starting the work package. If you selected a percent units complete or estimated percent complete then you should enter 240 which is 3/25 of 2,000, the budget for the task. You should not have used LOE since this is definitive work with deliverables due per a schedule. The fact that you and the course author can have different values of EV for the same work package may be a concern. Normally EVM is applied to projects with a large number of work packages. This causes the errors due to EVTs to balance out. So while at the work package level EVTs like 50/50 introduce error, the error is mitigated by the work packages and is of no importance once the work package is complete. Regardless, once the work package is complete the full value of its budget becomes EV so the EVT used becomes irrelevant. Don’t forget to complete the entry for program management and enter your hours spent too. Fig 7.3 shows the data the course author entered.

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Applied Earned Value Management Module 7 – Common Analytical Products from Earned Value Management

Figure 7.3 – April Solution Look at rows 33-36. Here are the variances computed for the control account. Both the current period (monthly) and cumulative to date are shown. Remember negative is bad (behind schedule or overrun), and positive is good (ahead of schedule or underrun). You have quantified your variance from the PMB. You can give values of CV and SV$ in reports and briefings. Click on the “PMB” and you will see you are catching up as the EV line approaches the PV line, and your costs are still in line since the EV and AC lines are very close together. The SVt is shown in row 50 and is around a negative 14 days. We’ll discuss the other rows in the STATUS worksheet later. Fig. 7.4 shows my current period and cumulative values and the cost and schedule variances. Your values will be different.

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Applied Earned Value Management Module 7 – Common Analytical Products from Earned Value Management

Figure 7.4 – April Current and Cumulative Data So far we’ve used the PMB to provide us a summary level view of our project cost and schedule performance. Calculating variances allows us to speak in quantitative terms. How did we do just last month? Using my date, the current period schedule variance is +160 and the current period cost variance is -65. So for April we spent a little more than we should have, but we did get more work done than planned. However, remember, the project was behind schedule so the extra work we completed in April was past due work. The cumulative cost variance is -125 and the cumulative schedule variance is -500. Remember the units are staff-hours, but could be dollars, euros, or any other measure of resources used. Both variances are negative so the project is behind schedule and overrun. The schedule variance is larger so we have a bigger problem keeping to our schedule that we have controlling our costs. This, of course, is easily shown on the PMB as well, where we see the latest value of EV almost equal to the AC, but significantly below the PV or PMB. See figure 7.5.

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Applied Earned Value Management Module 7 – Common Analytical Products from Earned Value Management

Project Authorized Budget $18 M (CBB) Contingency $3 M (MR) $15 M (BAC) Project Planned Budget

Planned Value is $8 M Budget

Actual Cost is $5 M

Cost Variance

Funds Earned Value Work Spent is $4 M Done Earned Schedule 6 10

Time Now Month 0 Time Month 18 Earned Schedule Schedule Variance (time) Actual Time

Figure 7.5 – Comprehensive Example

 Learning Activity 3 Complete

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Applied Earned Value Management Module 7 – Common Analytical Products from Earned Value Management Cost and Schedule Percent Variances

We have shown how the cost and schedule variances can be computed by calculating the differences in Actual Cost from Earned Value, and Planned Value from Earned Value respectively. These are quantified amounts of the variance. But is it a large or small variance considering the amount of work that was to be done? Cost and schedule percent variances answer this question. They tell us the percent we are ahead, behind, overspent, or under spent at this point in the project.

The percent cost variance is computed from: CV CV %  100 (Formula 4) EV

Note that this is a percent variance from the present value of Earned Value, not the BAC. So, while we may have a CV% of +10% it only states that we have paid 10% less than planned for the work we have accomplished. This is not the same as saying the project is or will complete 10% under its budget. The budget based percent schedule variance is computed from:

SV$ SV %$  100 (Formula 5) PV

Like the CV%, this schedule percent variance is based on the current value of Earned Value, not the project completion date. A SV%$ of -15% states only that we have not completed 15% of the work that was planned to be accomplished at this time. The time based percent schedule variance uses our Earned Schedule values since they are related to the time axis of the Performance Management Baseline. The formula is:

SVt SV %t  100 (Formula 6) AT

The EzEVM template does not compute SV% and CV% since the concept is straightforward and is duplicated by the Cost Performance Index and Schedule Performance Index to be discussed later. Let’s see how May performs. Learning Activity 4: Recording EV for troubled work packages MONTH ENDING MAY Narrative: Systems Engineering has hired an outside consultant to review the last system specification due to the response time issue. This has required several meetings to bring the consultant up to speed. You have stopped work on Top Level Design, finishing only a total of 16 function points. You are concerned that the code for this last spec may be more complicated than bid.

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Applied Earned Value Management Module 7 – Common Analytical Products from Earned Value Management

WORK PACKAGE STATUS

System Software Specification All complete.

System Engineering Approval Still awaiting Systems approval of the last system software specification.

Top Level Design We have stopped Top Level Design with 13 additional function points designed.

Detail Design 25 of the 100 routines have completed detail design

Coding

Unit/Integration Testing

Interface Testing

Functional Testing

Systems Sell Off

Project Management Continues

Financial: 1300 hours spent this month.

Enter your progress in column J for the work packages that are underway. There is no further discussion needed for the System Software Specification since it is complete. Systems Engineering Approval has not proceeded so its EV is zero for the third month in a row. Recall that 24 of 25 specs are done and had you selected a Percent Units Complete you would have more accurate EV for the control account, and you’d look better to the boss and customer. Top Level Design has stopped, but 13 function points have been done. If you used an X%/100-X% then you must enter zero for May. The work package is not done, so no EV is credited. If you used percent units complete or estimated percent complete then you should enter 800 for May. Detail Design has finished 25 of 100 designs and is therefore 25% complete. The course author selected percent units complete but planned to complete 30% (1200 hours), but will record only 1000 as 25% of 4,000 hours. You should enter the number appropriate EV for completing 25 units. At this point review the data in row 29-36 of your STATUS spreadsheet. Notice how the SV and CV show the performance for the current period and cumulative. Note how the current period SV and CV data is very volatile since it is subject to the various measurement schemes. The cumulative SV and CV is more stable and represented the long term trend of the cost account or project. The PMB sheet shows the same long term performance in graphical format. The course author’s solution shows the project about 2

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Applied Earned Value Management Module 7 – Common Analytical Products from Earned Value Management weeks behind with cost performance still pretty good, but the schedule improvement of last month has been lost as the project falls further behind schedule again. Your data and PMB may show slightly different results due to your EVTs and personal plan to get the work done. However, you should still show your account behind schedule and close to on-cost. The value in EVM is more about its ability to show the project’s summary cost and schedule condition than the detail of the work package performance. In a real project there will likely be many work packages so their individual EVT methods average to a total, accurate summary of the project performance.

 Learning Activity 4 Complete SPI and CPI

Two of the most common artifacts of an earned value management system are the cost performance index (CPI) and the schedule performance index (SPI). While any reasonably good means of tracking project performance will produce some form of cost and schedule variances, the use of SPI and CPI as project metrics is unique to earned value management. These indices represent unitless measures of the project’s performance efficiency. There is only one form of CPI, but as with the SV$ and SVt there are two forms of SPI; SPI$ and SPIt. The Cost Performance Index (CPI) simply tells us how efficiently we are using our funds or staff-hours. To obtain the index we simply divide the Earned Value by the Actual Cost or: EV CPI  (Formula 7) AC

Since this formula divides two terms having the same units the result is unitless. Thus we can compare the cost performance of two projects regardless of whether they use dollars or staff-hours in their CPI calculation. Referring again to Fig. 7.1 the CPI is only 0.8 (i.e., 4/5). Thus at this point in time we are only getting $4 of work done for every $5 we spend. The CPI can be plotted in a variety of formats. The most popular is shown in Fig. 7.6, Plot of CPI over Time.

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Applied Earned Value Management Module 7 – Common Analytical Products from Earned Value Management

Figure 7.6 – Plot of CPI over Time

The traditional SPI$ uses the earned value management terms Planned Value and Earned Value in the following formula: EV SPI $  (Formula 8) PV

Like the formula for CPI, this formula divides two terms having the same units so the result is unitless. Referring again to Fig 7.1 the SPI is only 0.5 (i.e., 4/8). Thus at this point in time we have only completed half the work we had planned. We know this is not good since the SPI$ is less than one. But with just the SPI$ we can’t know if this represents a behind schedule condition of a week, a month, or a year. So, while SPI$ helps us know how well we use the time we are given to complete the project, it fails to tell us how far ahead or behind schedule we are in time. As part of project portfolio management, we might be tempted to compare two project’s SPI$. This is a serious and often encountered mistake. Recall that at the end of the project the cumulative Earned Value must equal the cumulative Planned Value which at this point also equals the BAC. Thus the SPI$ must be 1.0 at the end of the project regardless of how early or late the project completes! Without knowing how much of the project is done we can’t know if the SPI$ is still reliable or not. SPI$ does not have the analytical quality of the CPI, which remains valid throughout the project. At some point beyond the halfway point all project’s SPI$ tends toward its final value of 1.0 rendering it less and less useful as the project proceeds. The concept of Earned Schedule gives us a second way of computing Schedule Performance Index, SPIt. A SPIt computed from the Earned Schedule data retains value to the project end. We can compute an SPIt using the Earned Schedule and Actual Time parameters in the following formula:

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Applied Earned Value Management Module 7 – Common Analytical Products from Earned Value Management

ES SPI t  (Formula 9) AT

Like our other indices a value greater than one shows an ahead of schedule condition. For example, referring to Fig. 7.2 suppose that our Earned Schedule is six months and the Actual Time is ten months. The SPIt is 0.6 (6/10). We completed six months of work in ten months so the SPIt is less than one.

SPIt is an improvement over SPI$ because SPIt (a) remains useful for the lifetime of the project, (b) can be used for side-by-side project comparison, and (c) can be retained (like CPI) as part of the project historical files. As we’ll see soon, since SPIt is accurate throughout the project it can also be used to estimate the project’s final completion date. Either or both SPIs can be plotted in a variety of formats. The most common is SPI versus time as shown in Fig. 7.7, SPI versus Time. This dramatically shows the fidelity of the SPIt compared to the traditional SPI$ as the project completes. Since both SPI and CPI values vary about 1.0 often they are plotted on the same curve to instantly convey the project’s current cost and schedule performance, the history, and a projection of where these values may go next. This is powerful information that can be quickly and visually conveyed to customers, stakeholders, and senior management.

Figure 7.7 – SPI versus Time An organization that simply uses earned value management to perform analysis of the project performance using schedule and cost variances, and SPI and CPI, gains significant information about how the project is progressing. However, if they fail to use these data to extrapolate the project to its final cost and completion date, they have missed the most valuable payoff from using earned value management. Let’s move the project into June.

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Applied Earned Value Management Module 7 – Common Analytical Products from Earned Value Management

Learning Activity 5: Understanding CPI, SPI$, and SPIt MONTH ENDING JUNE Narrative: Systems Engineering approved the specifications with some changes to the last specification regarding the timing response budget. Top Level Design was restarted and completed.

WORK PACKAGE STATUS

System Software Specification All complete.

System Engineering Approval Systems approval of the last system specification was obtained, with changes.

Top Level Design Top Level Design was restarted and completed all 25 function points design.

Detail Design 20 additional routines have completed detail design, bringing the total to 45 to-date

Coding Coding has not started, all staff members were used for design tasks.

Unit/Integration Testing

Interface Testing

Functional Testing

Systems Sell Off

Project Management Continues

Financial: 2000 hours spent this month

Enter the appropriate values of EV for each of the above work package that are underway or completed. You can finally claim the EV for the Systems Engineering Approval, and Top Level Design is done. The EV for Detail Design will depend on the EVT you selected and/or the rate at which the work package was to be completed. Remember, completed work will have the EV equal the PV, and the “EV” cell will be green. Coding will get an EV of zero. Enter the hours spent from the report too. Fig 7.8 shows the course author’s EVM data. Yours will differ since we are in a region of the project where you had complete freedom to plan your work packages and select your EVTs.

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Applied Earned Value Management Module 7 – Common Analytical Products from Earned Value Management

Figure 7.8 – June Solution

Fig 7.9 The SPI$ and CPI for the project show how the cumulative values stabilize while the current period values are more volatile. However, current period data can help understand last month’s performance and the trend for the cumulative values.

MONTHLY CPI 1.36 0.93 0.93 0.95 0.84 1.20 MONTHLY SPI ($) 0.37 0.71 1.62 1.14 0.47 1.26 CUMULATIVE CPI 1.36 1.05 0.98 0.97 0.95 1.00 CUMULATIVE SPI ($) 0.37 0.54 0.86 0.91 0.91 0.98 Figure 7.9 – June Current and Cumulative Values

The CPI and SPI$ are calculated in rows 38-41. We will discuss the color coding of these cells later. Rows 38 and 39 compute the indices for the current period; rows 40 and 41 are cumulative values. These indices are computed using the data in rows 25-31 as appropriate.

The CPI and SPI$ are plotted on the tab labels “Cumulative SPI & CPI” and “Current Period SPI & CPI”. Note the volatility of the current period indices. This is a result of the EVT used, and the cost and accomplishment for each month. Note too that while some months may have completed much more work than planned, the accomplishments may be on work that is long overdue. So a positive SV or SPI$>1.0 in a month may just mean delinquent work was finally done. The cumulative values of CPI and SPI$ are generally more useful as they capture the indices since the start of the project and can provide long term trends and tools to estimate the project outcome, to be discussed later.

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Applied Earned Value Management Module 7 – Common Analytical Products from Earned Value Management

You should have a cumulative SPI$ of less than one, perhaps between 0.85 and 0.95. Another way of viewing the SPI$ is as a percent of the work that is done versus what should have been done at this point. An SPI$ of .80 says 80% of the work planned to be done by now is complete. You should have a cumulative CPI close to 1.0. This says that your work-hours are being spent well and you are completing an hour of work in with about an hour of labor. If you had used funds, not work hours, you could say you are getting about a dollar of work done for every dollar spent. Fig 7.10 shows the earned schedule analysis of the project data. The data show that although it’s the end of June, the earned schedule shows we are effective at June 11. We have completed 159 days of work in 178 days. Looking toward the future we have 203 days of work to complete in 184 days. We are 23 days behind schedule. Our SPIt is 0.89.

Figure 7.10 – Earned Schedule Analysis

Row 51 shows the SPIt from the Earned Schedule analysis. These values are not very different from the SPI$. Recall the earned schedule will be of most benefit toward the end of the project when the SPI$ tends toward 1.0 as it must. The course author’s SPIt is 0.89 and says the project is spending time (clock time) with an efficiency of about 90%. Click on the “PMB” tab to see how the project is performing overall. Does it look well managed? If this were a large project with multiple levels in the WBS and OBS as well as many Control Accounts, it might be difficult to sort through the data to find where the problems are. That is why EVM uses variance thresholds to help sort out the big cost and schedule variances from the common everyday excursions from the plan.  Learning Activity 5 Complete To-Complete Performance Index (TCPI)

The TCPI index is used to test the reasonableness of completing the remaining work within the remaining budget or other budget amount. The formula for TCPI is: BAC  EV TCPI  (Formula 10) Budget  AC

The “Budget” term may be the BAC, EAC, or other total project target amount. The numerator is the work remaining (BAC-EV), the denominator are funds remaining www.prodevia.com 67

Applied Earned Value Management Module 7 – Common Analytical Products from Earned Value Management

(Budget-AC). If BAC is used this formula tests the reasonableness of finishing the work with the remaining funds. If a different term in used for “budget” this formula tests the reasonableness of finishing the work with that amount of funds. Once the calculation is done the value is compared to the cumulative CPI. If the two numbers are close, then it’s likely the value used for “budget” is sufficient. If the TCPI and CPI are far apart, and the CPI is less than one, it is very unlikely the project can complete with the amount used for “budget”. TCPI is computed in row 43 using the BAC value in the denominator. Notice how the CPI and TCPI mirror each other on opposite sides of 1.0. This shows that if the project has not spent funds efficiently to-date, then the project must over-achieve with a CPI greater than one to compensate for the poor performance to-date. Variance Thresholds

Variance thresholds are the common solution to the ANSI 748 requirement to perform a detailed analysis of “significant variances”. What is significant? It is whatever the customer or project stakeholders set as the level of concern. Knowledgeable project stakeholders know that every project is a unique undertaking and that variances from cost and schedule baselines are to be expected. In fact, a project that reports no EVM SV or CV, or SPI and CPI of 1.0 is highly suspicious, and the EVM data is likely no good. The thresholds should be set with an understanding of the nature of the work, the unknowns, and the industry’s ability to produce good schedules and cost estimates. Variance thresholds usually are shown as a percent or dollar (staff-hour) deviation from plan. A percent threshold might be 10% under- or over- budget. Of course this does not address the amount of the variance in terms or dollars (or staff-hours). An alternative threshold might be $45,000 under- or over- budget. A potential problem with this approach in that if thresholds are set for various levels within the OBS or WBS, the upper levels naturally have a large budget as they sum the budgets of all lower level work. A solution to this problem is to have any dollar threshold values vary with level of OBS or WBS, with large thresholds toward the top of the structure. Another option is to simply use the CPI and SPI values, with the tolerance being either side of 1.0, such a 1.0 +/- 10%, which brackets values from 0.9 to 1.1. Different thresholds are often set for current period data and cumulative. Since current period data is very volatile the thresholds are usually very tolerant, 25% or more as an example. Cumulative period data should be close to plan if the project has hope of finishing close to on schedule and on budget. So a 5% or 10% threshold might be applied to cumulative data. The use of thresholds is encouraged to limit the amount of variance analysis required in an ANSI 748 EVMS, but is also a good implementation of “management by expectation”. In your EzEVM template the thresholds are based upon the SPI and CPI. Column A, Rows 62-70 show the thresholds that are applied to color code the values of SPI and CPI. One might interpret the color coding to mean that anything coded red must be discussed in detail in a status report.

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Applied Earned Value Management Module 7 – Common Analytical Products from Earned Value Management

By this time, you should have learned that the individual estimates of work completed at the work package level may vary in accuracy due to the EVT used and the nature of the work. Does this bother you? It should not. Many projects have tasks where it is hard to measure progress. For example, design efforts, testing, systems integration are activities where progress is made every day, but the challenges in reaching the end point are still only estimated. However, using EVM to quantify these work packages, and adding them to mix of all work packages, some finished, some not started, and a few underway yields a pretty good estimate of the work done and work remaining. With this knowledge, and knowing how much funds (or staff-hours) are left, can we estimate the final cost and completion date? Estimates at Complete

Thanks to CPI, SPIt, and a budget that represents the work to be done (BAC), we have all the parameters we need to predict the future based upon the past. CPI tells us how efficiently we are using money, and using SPIt, tells us how efficiently we are using time. We can predict when the project will be done and how much we will spend getting there. Of course, any extrapolation based upon historical project data assumes the future performance will be close to the past performance. There is common knowledge, and statistical evidence that shows this assumption is valid for most projects. The work is as difficult as it is. The work scope, whether understood at the outset or not, is what it is. The workforce skills, availability, and motivation are what they are. Unless we know of a valid reason that the future will be different from the past, we can use earned value management to predict the final outcome based upon the project’s past performance. The estimate of the project’s final cost can be estimated using a number of formulas. One of the most common is: BAC  EV EAC  AC  (Formula 11) CPI

This formula starts with how much has been spent (AC) on the project, and adds the remaining work divided by our cost efficiency. The numerator (BAC-EV) simply computes the remaining work. If the BAC is $10M, and the project has earned $6M, then the project still has to earn $4M. We assume it will do so at a cost based upon the cost efficiency to- date or CPI. Fortunately, this formula can be algebraically simplified to: BAC EAC  (Formula 12) CPI

So, to estimate the project’s final cost all we need to do is divide the project budget (BAC) by the CPI! Research and a review of hundreds of projects that have used earned value management have shown the result of this calculation to be the most optimistic estimate of final project cost. This is because past cost overruns are usually unrecoverable and future problems and risks may still materialize on the project. What if our project has been running for some time and we know that the recent trend in CPI is more likely to continue than the long term average? In that case the formula below can be used:

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Applied Earned Value Management Module 7 – Common Analytical Products from Earned Value Management

BAC  EV EAC  AC  (Formula 13) CPI m

The subscript “m” indicates how many immediately past periods were used in the CPI. For example, a “3” would mean the last three periods were used to compute the CPI and then the calculation was made. (Note that CPI3 is not an average of the last three months CPIs, it is independently calculated from the sum of EV and PV for the last three months.) Another approach to computing an EAC is to consider the SPI as well as the CPI. The logic is that the efficiency of funds use (CPI) must be borne over more or less calendar time as indicated by the SPI. So a project with a cost problem (CPI <1), but getting more work done than planned (SPI>1), would have the cost problem for a short period.

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Applied Earned Value Management Module 7 – Common Analytical Products from Earned Value Management

The formula for this approach is: BAC  EV EAC  AC  (Formula 14) CPI * SPI$

Many other formulas have been proposed but the above three are the most common. Let’s enter the data for July and look at the EAC for your project.

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Applied Earned Value Management Module 7 – Common Analytical Products from Earned Value Management Learning Activity 6: Understanding Estimates at Complete MONTH ENDING JULY Narrative: Work continues. All available staff was used to push the detail design. Coding started late in the month and about 15% has been completed.

WORK PACKAGE STATUS

System Software Specification All complete.

System Engineering Approval All complete.

Top Level Design All complete.

Detail Design 47 additional routines have completed detail design, bringing the total to 92 of 100 to-date.

Coding Coding has started! Estimate that 15% is completed.

Unit/Integration Testing Not started

Interface Testing

Functional Testing

Systems Sell Off

Project Management Continues

Financial: 3500 hours spent this month.

Enter the data for Detail Design and Coding. Coding is 15% complete but your choice of EVT will determine if you can enter 15% of its budget or some other value due to the EVT rules. All the prior tasks are complete so their EV should equal their PV. Remember to enter the EV for project management and the hours spent as cost data. Fig 7.11 shows the EAC from my data. If look at past months you can see how the EAC vary as the values of CPI and SPI, ACWP and the amount of work remaining vary.

Figure 7.11 – EAC Data

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Applied Earned Value Management Module 7 – Common Analytical Products from Earned Value Management

Rows 56-59 show the calculated EAC for the three formulas discussed, and the average of the three. Note how the EACs have each varied over the project and between each one. If asked, the EAC provided should be a range of values between the lowest and highest EAC, perhaps even rounded downward and upward.

 Learning Activity 6 Complete Estimating Completion Date

Estimating a project’s completion date was not possible until the concept of Earned Schedule was introduced a few years ago. Recall that the traditional SPI$ is not a reliable indicator of schedule performance. Toward the end of the project the SPI$ approaches one and thus cannot be used to predict the project’s end date. However, SPIt is useful throughout the project lifetime and gives us a parameter to use to estimate the completion date. Analogous to the financial term BAC, we introduce a new earned value management schedule term associated with earned schedule techniques. Planned Duration (PD) is simply the expected duration of the project. If Planned Duration is added to a project start date, we obtain the planned project completion date (PCD).

We can use the SPIt in a formula similar to our EAC formula to obtain an Estimated Duration. PD ED  (Formula 15) SPI t

If we add the Estimated Duration to our project start date, we have the Estimated Completion Date (ECD)! Fig. 7.12 shows a comprehensive example of earned value management and the previously discussed terms and variances.

Project Authorized Budget $18 M (CBB) Contingency $3 M (MR) $15 M (BAC) Project Planned Budget

Planned Value is $8 M Budget

Actual Cost is $5 M

Cost Variance

Funds Earned Value Work Spent is $4 M Done Earned Schedule 6 10

Time Now Month 0 Time Month 18 Earned Schedule ScheduleVariance (time) Actual Time Figure 7.12 – Comprehensive Example

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Applied Earned Value Management Module 7 – Common Analytical Products from Earned Value Management

Let’s enter the data for our project for August and then see what the forecast is for the completion date.

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Applied Earned Value Management Module 7 – Common Analytical Products from Earned Value Management Learning Activity 7: Understanding Estimated Completion Date MONTH ENDING AUGUST Narrative: This month you have completed about 30% of the code (total done 45%). Due to the haste in completing some of the coding, you neglected to revisit the earlier completed design for the changes imposed by the systems engineering in the last specification. You should still complete on schedule, but will overrun the budget due to the re-work of completed and tested code. Please see if there is any corporate account you can use to offset this cost. Unit/Integration began on the stable and completed routines.

WORK PACKAGE STATUS

System Software Specification All complete.

System Engineering Approval All complete.

Top Level Design All complete.

Detail Design All 100 routines have been through detailed software design.

Coding Coding continues, some re-work, see narrative.

Unit/Integration Testing Unit/Integration testing tested has begun on some of the completed code. About 10 routines are in test.

Interface Testing

Functional Testing

Systems Sell Off

Project Management Continues

Financial: 1500 hours spent this month Detail Design is complete. Enter the applicable EV for Coding and Unit/Integration Testing, and the hours spent. Fig 7.13 shows the course author’s data through August. Your data will be different, however your data should show the same project condition – behind schedule, and developing cost problems as well.

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Applied Earned Value Management Module 7 – Common Analytical Products from Earned Value Management

Figure 7.13 – August Data In the course author’s plan there is recorded a total Earned Value of 12450; your number will be different. At the end of July, the author’s total Planned Value was 12500. So the progress at the end of August is about where it was hoped to be at the end of July. The earned schedule date in row 45 is 7/30. My SPIt is 0.86. The estimated completion date (ECD) is found in row 60. For the course author’s schedule and progress to-date the ECD is 2/27, so the project will finish about eight weeks late. Yours will finish late too since the project is struggling but your date may be different due to the different plan. The last EVM analysis tool to cover is simply the Percent Spent and the Percent Complete. Fig 7.14 shows the PMB.

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Applied Earned Value Management Module 7 – Common Analytical Products from Earned Value Management

PERFORMANCE MEASUREMENT BASELINE

20000

15000

PLAN (PV)

EARNED VALUE (EV)

COST (AC)

10000 NNE E D ALUEHO S) R OU E(H U L VA ED N R EA ED N AN L P

5000

0 1/3/06 1/31/06 2/28/06 3/31/06 4/30/06 5/31/06 6/30/06 7/31/06 8/31/06 9/30/06 10/31/06 11/30/06 12/31/06 TIME

Figure 7.14 – Performance Measurement Baseline Fig 7.15 shows the course author’s estimate at complete cost and estimated completion date. The project is forecast to complete on Feb 27th at a cost between 22,600 and 23,200 staff hours. This is far from the stakeholders’ expectation of 20,000 staff hours and delivery by December 31.

Figure 7.15 – EAC and Estimated Completion Date  Learning Activity 7 Complete

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Applied Earned Value Management Module 7 – Common Analytical Products from Earned Value Management Percent Spent and Percent Complete

We also can easily compute the Percent Spent as: AC PS  100 (Formula 16) BAC and the Percent Complete as: EV PC  100 (Formula 17) BAC

Of course we would like the Percent Complete to be very close to the Percent Spent. These two values are useful in providing project cost date to audiences that are not familiar with EVM. Intuitively the two values should be close.

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Applied Earned Value Management Module 7 – Common Analytical Products from Earned Value Management Learning Activity 8: Completing the Project Scenario

For our purposes it’s not necessary to exercise the EzEVM excel template further. However, for those who want to follow the project to its end point the September and October reports follow. MONTH ENDING SEPTEMBER Narrative: You thought you had 45% of the code completed, but the code for the last specification will add another 10000 lines of code. This is a 33% increase in the scope! So it is really only 34% complete. Recall earlier concerns about the difficult spec causing growth in the sizing estimates!

WORK PACKAGE STATUS

System Software Specification All complete.

System Engineering Approval All complete.

Top Level Design All complete.

Detail Design All complete.

Coding Code growth invalidated earlier estimates, see below.

Unit/Integration Testing About 20 of 100 routines have completed test.

Interface Testing Not started.

Functional Testing

Systems Sell Off

Project Management Continues

Financial: 1000 hours spent this month MONTH ENDING OCTOBER Narrative: You halted the Unit/Integration testing due to the incomplete coding. Coding is now 45% complete to the new 40,000 line total. Lots of uncompensated overtime was needed. This has demoralized the team. Tomorrow will be your last day; you have accepted another job.

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Applied Earned Value Management Module 7 – Common Analytical Products from Earned Value Management

WORK PACKAGE STATUS

System Software Specification All complete.

System Engineering Approval All complete.

Top Level Design All complete.

Detail Design All complete.

Coding 45% complete to new total

Unit/Integration Testing Waiting for code to complete

Interface Testing Not started.

Functional Testing

Systems Sell Off

Project Management Continues

Financial: 1000 hours spent this month

 Learning Activity 8 Complete

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Applied Earned Value Management Module 7 – Common Analytical Products from Earned Value Management

At this point you have covered all the technical details of EVM. You should be capable of applying EVM to projects and subprojects. You will have new insight into the current cost and schedule performance of your projects. You will be able to estimate the final project cost and completion date. You will have gained a valuable tool for your project management tool kit. We have not covered all the 32 EVMS guidelines found in ANSI 748. If you require an ANSI 748 implementation of EVM you should consider further training and the support of EVM process engineers to make sure you meet these demanding requirements.

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Applied Earned Value Management Module 8 – Real and Imagined Impediments to Earned Value Management Module 8 – Real and Imagined Impediments to Earned Value Management Impediments, real or imagined, stop many projects and organizations from implementing earned value management. This chapter will discuss some of the most common impediments and suggest means to overcome the real ones. Imaginary or real; education, earned value management pilot projects, earned value management champions, and communication about how earned value management will be used can go a long way toward reducing or eliminating these impediments.

The following table lists some commonly perceived impediments. Each will be discussed in detail.

IMPEDIMENT REAL IMAGINED

The ANSI 748 Standards must be met. X

People will view EVM as a personal X X measurement scheme

EVM requires planning time and resources X

EVM is costly and time consuming X

EVM requires an auditable cost collection X system

EVM requires a cultural change X

Executives must have interest in EVM X

A WBS is required to do EVM X

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Applied Earned Value Management Module 8 – Real and Imagined Impediments to Earned Value Management The ANSI 748 Standards Must be Met

A common imagined impediment is that one must meet all ANSI 32 criteria to perform earned value management. This is simply not true. While there is significant increased utility in an ANSI compliant earned value management system, there is also tremendous utility in a simple earned value management system that might meet only a few of the criteria. People Will View EVM as a Personal Measurement Scheme

This can be a real or imagined impediment, it depends on the management culture. Earned value management measures how well a project follows its cost and schedule planning. Project planners and project managers may immediately see this as management’s metric to measure their individual ability to plan a project and execute it flawlessly. For earned value management to be embraced as a project management tool the organization must disassociate personal performance measurement from earned value management project performance measurement. Project managers should be rewarded for the early detection of problems in the project plan, not for the ability to follow a flawed plan flawlessly. This translates into an open environment where the common goal of all concerned is to have the earned value management data accurately reflect the project status. Organizations which demonstrate or imply project manager rewards based upon project SPI and CPI values of one or greater often find the raw earned value management data has been compromised. One common indicator of an earned value management based reward system is the large use of level of effort (LOE) measures. LOE does not produce a schedule variance. A second indicator is the completion of milestones exactly on schedule, but lacking the quality or performance in the related products. Project managers should be rewarded for (a) extracting utility from earned value management, (b) minimal use of Project managers should be rewarded for level of effort, (c) early recognition of the early detection of problems in the project planning or scoping errors, and (d) plan, not for the ability to follow a flawed prediction of projects end date and final plan flawlessly. expenditures. EVM Requires Project Planning Time and Resources

Earned value management is excellent at measuring how well the project team can follow the project plan. When earned value management shows large cost or schedule variances very early in the project it usually indicates (a) the project planning was not completed, (b) the project planning was flawed, or (c) the project cannot follow the plan. These planning issues are usually caused by a lack of planning resources and staff hours, expertise, or time. Insufficient staff hours, time, or expertise can result in a poor plan that does not reflect the project scope, consider the risks, estimate the time and resources accurately, or complete the planning before starting execution. These problems are not unique to earned value management. They are too common in many project environments. However, earned value management’s ability to quickly and quantitatively show a project is not following its plan suggests that good planning is even more important when deploying earned value management.

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Applied Earned Value Management Module 8 – Real and Imagined Impediments to Earned Value Management EVM is Costly and Time Consuming

This is a common misperception. Once the investment is made in developing a sound, well developed project plan, the application of earned value management is a rather small final step. The ANSI 748 criteria do impose a large start-up cost in integrating data that was not likely integrated previously. But the effort to simply obtain the overall project Planned Value, Earned Value, Actual Cost, and compute the resulting SPI and CPI is simple and straight forward. The development of the Estimate-at-Complete (EAC) cost, and completion date is also straight forward. The author has implemented EVM using spreadsheets, a resource loaded schedule, and a financial forecast in less than a day. Using EVM to simply obtain a better idea of how a project is doing is not costly or time consuming. Requires Auditable Monetary Cost Collection Mechanism

If we are to be able to compute a Cost Performance Index we need to have cost data. Recall that the formula for CPI is Earned Value divided by Actual Cost. Whatever economic units we use they cancel each other when computing a CPI. We can still perform earned value management if we consider resource consumption as a cost of completing project work. Labor intensive projects like IT or engineering can use staff- hours to capture most, if not all, the project scope using earned value management. This has a distinct advantage over monetary units for technical labor intensive work. Technical staff and team leaders often think in staff hours. They use staff hours to estimate work effort and can manage and control staff hours. Often they review and approve weekly timesheets. If we ask our technical staff to address labor rates and overhead costs they might feel less responsible for the monetary value. Another advantage of using staff hours as a unit of economic measure is that the staff hours consumed are immediately known when reported. If timesheets are completed weekly, and we also obtain our Earned Value weekly, we can perform earned value management analysis without waiting for financial reports from the payroll department. Some organizations perform weekly earned value management using only staff hours so that they can immediately see any variances. At month end or even a few weeks later they get the month end economic report. These organizations prefer to work with weekly staff-hours rather than wait for month end reports only to learn that the first week of the month did not go well. Earned value management should be a proactive management tool. However, use of only staff-hours will not meet the ANSI 748 standard and does not allow us to use earned value management to manage material and other pure cost items. Cost Data Must Be Auditable and Accurate

Having auditable cost data is a requirement of ANSI 748 compliant earned value management systems. Accurate cost data forms a part of the several of the ANSI criteria. Historically much corporate energy has been spent on integrating the earned value management system with the formal books of account in order to have timely, accurate, and auditable cost data. However, from a pure earned value management point of view the cost data need only be as accurate as our ability to know our Earned Value. Earned Value is often determined from subjective estimates of work completed. Some of these

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Applied Earned Value Management Module 8 – Real and Imagined Impediments to Earned Value Management estimates are made for very intangible tasks. (For example, to accurately answer, “What is your percent complete in requirements definition?” requires knowledge of how many requirements will ultimately be defined.) If we compute a Cost Variance (Earned Value- Actual Cost) it is only as accurate as our estimate of the Earned Value, regardless of the precision of the cost data. Cultural

Application of earned value management is a cultural change. We have already discussed how earned value management might be viewed as a project manager performance appraisal parameter and the terrible consequence of really doing so. Earned value management also requires a shift in the way people think about time spent, money or hours spent, and work completed. Just because time, or money, or staff hours were spent on task does not mean work was accomplished. This is big leap of understanding but essential if earned value management data is to be of value. Unfortunately, much of today’s project management software makes assumptions about the completion of work based solely on hours or funds spent as a per cent of a budgeted amount, or based upon some period of elapsed time as a percent of the planned duration of a task. However, spending 30% of a budget does not guarantee that 30% of the work was completed; or 10% or 50%. There is simply no equation that can compute work done based on funds Earned value management requires an spent. The same is true for time spent. Earned independent assessment of what was value management requires an independent accomplished, which should and can assessment of what was accomplished, which be made without knowledge of the funds or time that has been spent. should and can be made without knowledge of the funds or time that has been spent. Executives Must Have Interest in EVM

Like any initiative, for sustained use of earned value management the organization must show interest. Earned value management terms and analysis products should be understood by management if they expect the project managers and their teams will use it. One Fortune 100 CEO has earned value management analysis data as one quadrant on each of his one-page project dashboards. Earned value management can be one of the key metrics used in program management and portfolio management due to its ability to predict project competition dates and costs. These values should be reviewed against the original business case and continuous ROI calculations to determine if the project should be accelerated, delayed, prioritized, or cancelled. It can also help forecast revenue, expenses, and profit for corporate financial statements. A WBS is Required

The ANSI earned value management standard requires the project scope be decomposed. It strongly suggests a WBS as a mechanism to do this. A WBS is also a well adopted project management best practice and the author considers a WBS essential to manage any significant project. However, the term “WBS” does not appear in any earned value management analysis formula or graph. One can perform earned value management on a “team of five” effort that does not require any further decomposition.

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Applied Earned Value Management Module 8 – Real and Imagined Impediments to Earned Value Management

The ANSI 748 requirement for WBS is there to require decomposition of the project so that cost and schedule variances can be computed within the project as well as for the whole project. This is to assist in determining where the projects variances are the largest. For a very small effort a WBS is simply not needed.

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Applied Earned Value Management Module 8 – Real and Imagined Impediments to Earned Value Management Review Questions The following questions will assist you in reviewing concepts contained in this module. Answer the following questions:

1. If the guidelines of ANSI 748 are not followed can EVM still yield any value and why?

2. List two indicators that project managers or cost account managers are not accurately reporting EVM data.

3. The project has just started and its SPI and CPI are significantly below 1.0. What might be three likely causes for this poor performance?

4. Why should the implementation of a simple EVM add little cost or effort to the project?

5. Explain how EVM can be used on projects that do not collect cost data.

6. Which EVM parameter (PV, EV, or AC) represents the greatest challenge in obtaining accurate data?

7. State the fundamental relationship regarding project time spent, project funds spent, and project work done.

8. Explain when a WBS might be needed to implement EVM.

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Applied Earned Value Management Appendix Appendix A – EVM Cheat Sheet

Terminology AC: The Actual Cost of Work Performed (Cost of Completed Work) (same as ACWP)

The total cost of the completed work.

ANSI 748 The US standard for the implementation of EVM requiring satisfying 32 guidelines.

AT: Actual Time (Earned Schedule Term)

The elapsed time since the project start to the status date.

BAC: Budget at Complete; the total budget planned with EV

May not equal your total budget. Equal to the value of the work in the plan. Represents the work to be completed.

CAM: Control Account Manager, previously Cost Account Manager

The individual receiving a Work Authorization, performing planning and execution for assigned work, determining PV and EV on a monthly basis, and explaining significant variances. A significant role in ANSI 748 EVMS implementations.

CBB. Contract Budget Base, essentially the value of the contract.

CPI: Cost Performance Index

Unitless measure of the cost of completed work. “Productivity”

CV: Cost Variance

How much more or less the completed work has cost (AC) compared to the planned cost (PV).

EAC: Estimate at Complete, a.k.a. LRE (Latest Revised Estimate)

An estimate of the total cost when all work is done.

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Applied Earned Value Management Appendix ES: Earned Schedule (Earned Schedule Term)

The point in time (time axis) when the cumulative EV value is found on the Performance Management Baseline (PMB). It answers the question, “At what time was I expecting to accomplish the current amount of earned value?”.

EV: The Budgeted Cost of Work Performed (Completed Work) (same as BCWP)

Translation: the gain in project equity as a result of completed work. The equity gained equals the equity planned, regardless of the cost to accomplish the work.

EVM: Earned Value Management. a project management tool

EVMS: Earned Value Management System. a set of policies, procedures, forms, system, and software defining an organization’s implementation of EVM.

EVT: Earned Value Technique

A method to determine the EV for partially completed work, identical to WIP.

MR: Management Reserve. funds to address cost issues such as rate changes, etc. In an ANSI 748 EVMS implementation MR is only held by the PM. MR is NOT part of the BAC (baseline) since it is not planned to be used unless needed, and the specific work scope using these funds is not known. When used, MR is transferred to a CAM using a revised WAD and becomes part of a revised plan and baseline.

PD: Planned Duration (Earned Schedule Term)

The total planned duration for the project.

PV: The Budgeted Cost of Work Scheduled (Planned Work), (same as BCWS)

Translation: the expected gain in project equity as each piece of work is completed. The scheduled (plan) to build equity from zero to the total project value.

SPI: Schedule Performance Index

Unitless measure of on-schedule condition using budget units, shown as SPI$ or SPI($) when using earned schedule.

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Applied Earned Value Management Appendix SPIt: Schedule Performance Index (Earned Schedule Term)

Unitless measure of on-schedule condition, using time units.

SV: Schedule Variance

How much work is completed (EV) compared to the work planned to be completed (PV) at this point. Sometimes shown as SV$ or A SPI(t) when earned schedule is used.

SVt: Schedule Variance (Earned Schedule Term)

The difference between the point in time when the cumulative EV was to be attained and when it was actually attained.

UB, Undistributed Budget. Funds which are planned to be used but not yet transferred to the Control Account Manager. UB funds are included in the BAC (baseline) since they represent work to be done.

WAD : Work Authorization Document. An agreement between a CAM and the PM that authorizes the CAM to take on specific project work; meet cost, schedule, quality and other requirements; perform necessary planning; and manage the work scope assigned.

WIP:Work in Process Measure

A method to determine the EV for partially completed work. Identical to EVT

WR: Budgeted Cost of Work Remaining; the work left to do

The total work minus the work completed. BAC – EV

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Applied Earned Value Management Appendix Planning and Measuring Progress 100% AT COMPLETE

Application: the total planned value is earned upon accomplishment of the completion milestone, no credit for starting, no credit for being underway, recommended for 1-2 month (or reporting period) tasks.

WORK PACKAGES WIP MEASURE BUDGET TOTAL 1 2 3 4 5 6 S/W TEST COMPLETE PV 0/100% 320 320 0 320 EV PV EV 50% AT START, 50% AT COMPLETE

Application: 50% of direct labor hours are earned when the task begins; the 50% balance is earned upon task completion, no credit for being underway, cannot earn credit in middle months (or reporting periods) unless all work is complete, recommended for 2-3 month (or reporting period) tasks.

WORK PACKAGES WIP MEASURE BUDGET TOTAL 1 2 3 4 5 6 DEFINE SYSTEM REQM'TS PV 50/50 % 800 800 400 400 EV PERFORM INITIAL DESIGN PV 50/50 % 1000 1000 500 0 500 EV X% AT START, 100-X% AT COMPLETE

Application: x% of direct labor hours is earned when the task begins; the balance is earned upon task completion, no credit for being underway, X< 50% realizes it’s easier to start than to finish, cannot earn credit in middle months unless all work is complete, recommended for 2-3 month (or reporting period) tasks.

WORK PACKAGES WIP MEASURE BUDGET TOTAL 1 2 3 4 5 6 DEFINE SYSTEM REQM'TS PV 30%/70% 800 800 240 560 EV PERFORM INITIAL DESIGN PV 40%/60% 1000 1000 400 0 600 EV

VALUE MILESTONES

Similar to 100% at complete, but multiple milestones per work package or task; instead, consider separate work packages and use other measurement schemes. PERCENT UNITS COMPLETE

Earned value is based upon the units complete times the direct hours or budget (dollars) per unit. Units must be of roughly equivalent values (i.e. not well suited for “learning curve” tasks).

WORK PACKAGES WIP MEASURE BUDGET TOTAL 1 2 3 4 5 6 CODE REVIEWS PV % UNITS COMPL 1000 1000 100 200 400 300 EV PV EV

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Applied Earned Value Management Appendix ESTIMATED PERCENT COMPLETE (i.e. A GUESS)

The WIP (manager's estimate) portion of the work package earns value based upon his/her estimate of completion, recommend no credit >80% unless task is 100% complete (avoids the asymptotic approach

WORK PACKAGES WIP MEASURE BUDGET TOTAL 1 2 3 4 5 6 S/W DETAIL DESIGN PV ESTIMATED % 900 900 90 180 225 180 135 90 EV PV EV 10% 20% 25% 20% 15% 10% to 100%).

LEVEL OF EFFORT (I.E. NO MILESTONES OR PRODUCTS)

Applied to tasks that do not produce definitive end products. Earned value is accumulated through the passage of time, LOE may, but is not necessarily a “level effort”. LOE >15% of budget is considered not good since it masks schedule and cost variances.

WORK PACKAGES WIP MEASURE BUDGET TOTAL 1 2 3 4 5 6 OPERATE S/W LIBRARY PV LVL OF EFFORT 840 840 120 160 190 200 130 40 EV PV EV

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Applied Earned Value Management Appendix EVM Calculations Variances from Plan

SCHEDULE VARIANCE COST VARIANCE

Equity gained minus expected equity Equity gained minus cost of equity gained SV = EV - PV CV = EV - AC Negative is bad, positive is good Negative is bad, positive is good

Percents

PERCENT PERCENT PERCENT SPENT and COMPLETE SCHEDULE VARIANCE COST VARIANCE

%Spent = 100*(AC/BAC) %SV= 100*(SV/PV) %CV = 100*(CV/EV)

%Complete = 100*(EV/BAC)

Indices

COST INFORMATION SCHEDULE INFORMATION Cost Performance Index Schedule Performance Index

“did the cost of equity gained equal the equity?” “did a month of schedule produce a month of progress?”

CPI = PROGRESS/COST SPI = PROGRESS/PLAN

EV CPI  EV AC SPI  PV

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Applied Earned Value Management Appendix

Forecasting

PRODUCTIVITY NEEDED ESTIMATED FINAL COST (EAC)

To_Complete Performance Index Uses cumulative to date CPI and SPI WR * FINAL _ COST  ACcum  “How productive do I need to be to finish on CPIcum target cost?”

WR TCPI  WR BAC  AC FINAL _ COST  ACcum  CPIcum *SPIcum

WR =Work Remaining (BAC-EV) *WR =Work Remaining (BAC-EV)

Earned Schedule Formulas

SCHEDULE VARIANCE (t)

Difference between the point in time when the cumulative EV was to be attained and when it was actually attained

SVt=ES-AT

Negative is bad, positive is good

SCHEDULE INFORMATION Schedule Performance Index

How close is the progress made to the plan

SPIt = ES/AT <1.0 is behind schedule, >1.0 is ahead of schedule

ESTIMATED COMPLETION DATE

At the current rate of progress when will the project complete

ECD = START DATE + PD/SPIt

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Applied Earned Value Management Appendix Appendix B – EzEVM™ MS Excel Workbook Instructions for Macro Settings

To help you with the EVM math and EVM charting you will be using EzEVM™ MS Excel workbook templates prepared, copyright, and trademarked by Management Technologies. You must have macros enabled for the workbook to operate. Excel 2007 and previous versions of Excel control macro security differently. The goal is to have your Excel macro settings ask you if you wish to run the macros, rather than preventing all macros from running or running all macros. This gives you control. You should only allow macros to run in workbooks from known sources and which have been scanned for viruses. The workbooks in this course have been scanned by virus protection products that were current as of the date the CD was created. Once you open and use the workbook you should save it to your hard drive or elsewhere so that your data does not have be re-entered. You should have your virus protection set to routinely scan your saved version of the Excel workbook in case there is an attempt to infect your saved file.

Macro Security in Pre Excel 2007

If you open the workbook and see following dialog box your Excel macro security is set correctly and you should select “Enable Macros”. If not go to “Setting Security in Pre 2007 Excel” below.

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Applied Earned Value Management Appendix Setting Security in Pre 2007 Excel

If you do not see the above dialog box your settings either allow only signed macros or inhibit all macros. To change this setting select TOOLS/OPTIONS and click on the Security tab and the Macro Security button (see next image)

This will give you the following dialog box. Select Medium security level. Then click on OK as needed to close all open dialog boxes.

Finally, close and re-open the workbook. You should see the first dialog box above.

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Applied Earned Value Management Appendix

Macro Security in Excel 2007…

If you open the workbook and see the following Security Warning your Excel macro security is set correctly and you should select “Options…”. If you do not see Security Warning, then go to “Setting Security in 2007 Excel” below.

Selecting “Options….” will present the following dialog box. Select “Enable this content.”

Click OK as needed to return to the EzEVM workbook. Setting Security in Excel 2007 1. Click the Office Button (round button upper left) 2. Click on Excel Options button 3. Click on Trust Center 4. Click on Trust Center Settings, as shown below.

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Applied Earned Value Management Appendix

5. Click on Macro Settings 6. Select "Disable all macros with notification".

7. Click "OK" on all open dialog boxes.

Save this workbook, close it, and re-open it. You should see the “Security Warning” dialog above. Then select "Enable this content" and click OK

Saving and Warnings in Excel 2007

It is not a good idea to save your workbook in Excel 2007 format. Save it in the format as found on the file. You may see warnings and messages when first opening the workbook. Generally, click on OK. For example:

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Applied Earned Value Management Suggested Answer Key

Suggested Answer Key for Review Questions

Module 1 – Introduction to Earned Value Management Review Questions 1. Earned Value Management is the newest in a series of innovative project management techniques, true or false? False, EVM has been around for over 30 years. 2. Earned value management requires what basic knowledge about a project’s status? What has been planned to be completed, what has really been completed, and how much has been spent on the project. 3. Simply comparing what has been spent on your project with what you planned to spend misses what important project aspect? The value of the completed work or accomplishments. 4. What levels in the project or organization can make use of EVM? All projects and all levels. Module 2 – Basic Concepts of Earned Value Management Review Questions 1. How is the value of Planned Value established? Planned value is the value of work as set by its budget. 2. Explain how the Performance Management Baseline (PMB) curve is a time phased budget. The PMB shows the cumulative budget planned to be spent each period to complete the cumulative work scheduled for that period. 3. What is significant about the end point of the Performance Management Baseline (PMB) curve? The end point of the PMB equals the budget planned to be spent on all project work, or the Budget at Complete (BAC). 4. Why might the BAC be less than the value of our contract or company provided funds for the project? The project manager may have set aside profit, contingency funds, management reserve, or other funds that are not planned to be spent if at all possible. 5. Why can’t Earned Value be derived from the funds spent? The amount of work completed is not related to the funds spent. More or less work may be completed. 6. Why can’t Earned Value be derived from the amount of time spent on a task? The amount of work completed is not related to the time spent. More or less work may be completed.

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Applied Earned Value Management Suggested Answer Key

7. What will be the cumulative value of Earned Value at the end of the project? The cumulative EV will equal the cumulative PV since all planned work will have been completed. Also, the cumulative EV will equal the BAC since the BAC is the cumulative value of all work on the project. 8. Your project is underway and the cumulative value of EV is $34K and the cumulative value of PV is $31K. What statement can be made about the project? The project has completed more work than planned at this point in time. The value of the completed work is $3K more than the work that was planned at this point. 9. Describe the problem faced by a project manager who simply compares his costs to-date with his planned costs-to date. There is no measure of the work completed to compare to the money spent. Comparing funds spent to the plan to spend money does not provide any useful project information. 10. Why should the effort to obtain the EVM parameter “Actual Cost” be a trivial effort? All projects which practice basic project management should collect the cost of doing project work. Module 3 – What is Required to Use Earned Value Management

Review Questions 1. Describe the sequence of planning activities to produce a sound schedule and cost estimate? Identify internal/external products, then the activities to product these products, sequence these activities as predecessors and successors, estimate the resources needed to complete each activity, cost out the resources to obtain the total planned expenditure for each activity. 2. What is the EVM term for contingency funds? Management Reserve 3. Why are the funds set aside for risks or contingency not part of the EVM Performance Management Baseline? Since these funds are for uncertain future events they are not associated with any particular work or timeframe. 4. How is the Planned Value for each project activity determined as a consequence of project planning? Once the resources to complete an activity are known their planned cost to the project can be found. This is the planned value for the activity. 5. Why is it necessary to use EVTs in planning work packages? The EVTs provide the rules for determining the PV and EV for each period the work package is underway. 6. What is the most accurate EVT? Percent units complete. 7. What is the least accurate EVT and why? Level of effort since it can not measure any schedule progress or delays.

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Applied Earned Value Management Suggested Answer Key

8. Explain the problem in using 50%/50% or X%/100-X% EVTs in lengthy work packages. For work packages over two periods in length the planned value for the middle periods must be zero. This means a work package proceeding on- schedule will show no earned value from second period after it starts until it is completed. 9. You have a work package that requires you to build 87 units. What is the best EVT to use to measure your progress? Percent units complete. 10. It is estimated that you will have to create 20 prototypes for lab testing. If all goes well perhaps testing will be finished after using only 16 prototypes. What is the best EVT to use to measure your progress in building prototypes? Estimated percent complete. 11. You have to review and approved ten design packages over a two-month period. What is the best EVT to use for this work package? An X%/100-X% measure could work over a two-month period but since you have a finite number of units to count a percent units complete is the best measure, even for a short time span task. Module 8 – Real and Imagined Impediments to Earned Value Management Review Questions 1. If the guidelines of ANSI 748 are not followed can EVM still yield any value and why? Yes, valuable insight in a project’s cost and schedule performance can be gained with a simplified implementation of EVM. Applying ANSI 748 adds additional information and may be required for some customers and US Government agencies. 2. List two indicators that project managers or cost account managers are not accurately reporting EVM data. Any of the following are indicators that PMs or CAMs are fudging the EVM data to look good:  CPI = 1.0, SPI = 1.0 for non-LOE efforts  Large use of LOE in measureable work  All milestones completed on schedule  CV is zero, SV is zero for non-LOE work 3. A project has just started and its SPI and CPI are significantly below 1.0. What might be three likely causes for this poor performance? (a) the project planning was hastily done or terminated before it was completed, (b) the project plan is flawed, (c) the project is unable to follow its plan. 4. Why should the implementation of a simple EVM add little cost or effort to the project? The EVM baseline is established at the end of the planning effort. The planning should take place regardless of the use of EVM or not.

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Applied Earned Value Management Suggested Answer Key

5. Explain how EVM can be used on projects that do not collect cost data. For labor intensive projects PV, EV, and AC can be recorded in staff-hours. Since CPI and SPI divide these terms the units cancel. 6. Which EVM parameter (PV, EV, or AC) represents the greatest challenge in obtaining accurate data? EV is most difficult to accurately obtain since it is often an estimate of the work completed. AC is usually quite accurate when its recorded staff-hours or funds spent. PV is a planned value and is accurate since it is defined during planning. 7. State the fundamental relationship regarding project time spent, project funds spent, and project work done. There is no relationship between project time spent, project funds spent, and project work done. One can spend (clock) time and no money, money and no time, or spend time and money and accomplish little, nothing, or more than would be expected. 8. Explain when a WBS might be needed to implement EVM. A complex project should be broken down into manageable pieces in any case, and a WBS is usually the means. ANSI 748 requires a WBS.

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Emotional Intelligence for Project Managers End of Course Assessment Preparation Below are examples of the types of questions you can expect from the course’s online assessment. Please answer the following questions and then check your answers with the answer key that follows.

1. EVM Cost Variance is found by –

 Subtracting the value of completed work from the cost of doing the work.

 Comparing the project’s planned cost with the project’s actual costs.

 Subtracting the cost of doing the work from the value of completed work.

 Finding the difference in planned costs versus actual costs for labor and material.

2. Which of the following earned value techniques (work in progress measures) yields the most accurate Earned Value [EV or BCWP]?

 Weighted milestones

 Cost ratio

 Equivalent Units

 Units completed

3. Apportioned effort is used –

 When work is apportioned between two CAMs.

 When a support contractor control account manager is involved.

 When the progress of one control account paces the work of another.

 When funds are allocated to future year’s work.

4. A direct cost to a project could be –

 Corporate salaries.

 Office building heating and cooling.

 Raw material.

 Health insurance.

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Emotional Intelligence for Project Managers End of Course Assessment Preparation 5. EVM Schedule Variance is found by –

 Comparing last month’s float to this month’s float.

 Comparing what was to be accomplished with what has been accomplished.

 Subtracting the value of the work planned from the cost of work completed.

 Subtracting the cost of the work completed from the value of work planned.

6. The control account integrates –

 Schedule and technical performance.

 Cost and schedule and technical performance.

 Cost and schedule performance.

 Technical performance and cost.

7. The reason for having a Level of Effort work-in-process measurement in an EVM baseline is –

 To address manpower resource leveling.

 For use in service based contracts that provide a fixed staff size.

 To permit project support activities to be included in the EVM baseline.

 Give the project management freedom to assign resources.

8. Work packages are subdivisions of –

 The WBS.

 A control account.

 The OBS.

 The RAM.

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Emotional Intelligence for Project Managers End of Course Assessment Preparation 9. Which of the following are generally the most accurate Earned Value Techniques?

 LOE, 100% at complete, and weighted milestone.

 50/50, 0/100, and estimated percent complete.

 Apportioned effort, percent units complete, LOE.

 Percent units complete, estimated percent complete weighted milestones.

10. Management reserve should be used –

 To help refine earned value measurement.

 To provide schedule float.

 To make sure the project will make a profit.

 To offset potential cost or rate variances.

11. Indirect costs may include –

 Lighting, building security, subcontractor costs.

 Project manager’s salary, receiving inspection, material handling.

 Building lease payments, security services, executive salaries.

 Vendor costs, subcontractor costs, travel costs.

12. A work package –

 Is used set work aside for a later date.

 Is shown on summary level schedules.

 Requires a budget.

 Is required to determine Earned Value [EV or BCWP] and Actual Cost [AC or ACWP].

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Emotional Intelligence for Project Managers End of Course Assessment Preparation 13. The CPI measures –

 How effectively funds are being spent.

 How much work was charged to the project.

 The ratio of BAC to the total contract value.

 The consumer price index.

14. Undistributed budget is used –

 To retain funds for contingencies.

 Until work authorizations are revised for any funded scope changes.

 For unexpected scope increases.

 To increase profit.

15. You are reviewing the EVM data from a two-year project that has been underway for ten months. The project reports an SPI of 1.0 and a CPI of 1.0. Your follow-up action should be –

 To not waste your time reviewing this project, and instead review data from other projects.

 Work with the project manager to present the project at the next staff meeting as an example of good project management.

 Investigate the project’s cost accounting methods and earned value techniques.

 Document the project’s status in a recommendation to promote the project manager.

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Emotional Intelligence for Project Managers End of Course Assessment Preparation Assessment Test Answer Key 1. Subtracting the cost of doing the work from the value of completed work. Earned Value [EV or BCWP] is the value of the work completed, Actual Cost [AC or ACWP] is the cost to complete the work, and Planned Value [PV or BCWS] is the planned work but may not have been complete so it is not important. CV = Earned Value [EV or BCWP] – Actual Cost [AC or ACWP]. 2. Units completed. Units completed provide an exact count of progress and is the most accurate. 3. When the progress of one control account paces the work of another. The definition of apportioned effort is when the progress of one control account paces the work of another. 4. Raw material. Raw material is the only item that is likely to be a direct cost of the answers offered. 5. Comparing what was to be accomplished with what has been accomplished. Planned Value [PV or BCWS] is the plan to complete work, and Earned Value [EV or BCWP] is the work completed. SV = Earned Value [EV or BCWP] – Planned Value [PV or BCWS]. 6. Cost and schedule and technical performance. Control accounts are mini-projects that support the whole project, and therefore have the three typical project elements (triple constraints). 7. To permit project support activities to be included in the EVM baseline. Since all project work must be in the baseline, support tasks that have no schedule need a method to record their Earned Value [EV or BCWP]. 8. A control account. This is the most accurate answer, per ANSI 3.5.10. 9. Percent units complete, estimated percent complete weighted milestones. LOE is the worst; 50/50 or 0/100 do not allow meaningful estimates of work that is underway; percent units complete is the most accurate followed by a knowledgeable estimated percent complete. 10. To offset potential cost or rate variances. ANSI 748, section 3.5.4 states that management reserve is used to offset potential (current or future) cost or rate variances. 11. Building lease payments, security services, executive salaries. Typically costs for the buildings, building security, and corporate executives are indirect costs to a project. The other answers have some element that is usually a project direct cost. 12. Requires a budget. Work packages are assigned a budget only to show that some WP have more Planned Value [PV or BCWS] than others. It is not necessary to collect costs at the WP, since EVM cost variances need only be done at the control account level. (ANSI 2.4a)

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Emotional Intelligence for Project Managers End of Course Assessment Preparation 13. How effectively funds are being spent. CPI measures work done per dollar or staff hour, and thus is a measure of efficiency in using funds or staff-hours. 14. Until work authorizations are revised for any funded scope changes. UB is a holding account for in scope work that is yet to be assigned to a control account. 15. Investigate the project’s cost accounting methods and earned value techniques. A project with perfect SPI and CPI is highly suspicious. Usually the EVM data is being modified to make it look good. You should dig into the project to see how EVM is really being implemented.

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